My Watchlist [127]: LULU... Lemonade or a "Lemon"?

Hi everyone. Today I’ll be looking at an athletic apparel retailer:

Lululemon Athletica Inc. (NASDAQ: LULU)

LULU is trading in an ascending channel that has been making higher highs and higher lows. It has spent the entirety of the year, so far, correcting from the top of the channel to the bottom of the channel. The monthly Stochastic reading now sits at 0, 1 - this is considered an extreme oversold reading. The past few times LULU got this oversold on the monthly, it minimally gave a retaliatory bounce, if not a local bottom.

For the weekly chart, the Stochastic is trying to put in a higher low. I’m just using the weekly chart to illustrate one of the major levels that I’m watching - 252.03. This level marked the bottom in May’22 and resulted in LULU making new ATHs. Should this level be breached, we could be staring at a double top breakdown below the neckline, and a potential crash pattern as well as a crush of investor sentiment on this name.

On the daily chart, LULU is trading in a short-term descending channel with lower highs and lower lows. A potential 3-legged bullish divergence pattern is forming which could be indicative of a move up in the coming weeks.

For the bullish thesis to take effect, LULU needs to hold 252.03 and break above 281, which has been strong support on quite a number of occasions in the past. If this happens, I expect LULU to grind higher towards the 321.25-326.93 area and subsequently the 381.64-384.02 area.

If LULU fails to hold 252.03, then it will likely break down below the ascending channel (in green) and start a move down towards the next daily gap - the 184.77 -185.75 bullish gap dating back to Apr’2020.

Based on the chart, there is some merit in going long at current levels. However, investors have to be cautious if LULU spends time below 252.03. It might be better to scale in after confirmation of a trend reversal rather than trying to anticipate that it will hold at a key support level.

Thus, I am initiating coverage on LULU with a TECHNICAL BUY rating, despite seasonality risk (Aug-Sep) and the possibility of a structural breakdown. However, the invalidation trigger is clear, and a move below it for a sustained period of time will then trigger a TECHNICAL SELL rating immediately. There is no point trying to fight a structural breakdown, as higher timeframe breakdowns have shown time and time again that they lead to bearish price action in the longer term.

Sentiment: TECHNICAL BUY (New)

Summary (with Price Targets - NFA):

• Trading at the bottom of the long-term ascending channel (in green) and trying to reverse trend via a short-term descending channel (in red)

• 252.03 is key as it is the neckline of the double top pattern on LULU; a breakdown below this level is likely to lead to sustained bearishness towards the 184.77-185.75 area

• Holding 252.03 and breaking above 281 is likely to lead to a rally towards 321.25-326.93, and subsequently the 381.64-384.02 area

@TigerWire @TigerEvents @TigerStars @CaptainTiger @MillionaireTiger

$Lululemon Athletica(LULU)$ $Nike(NKE)$ $Deckers Outdoor(DECK)$ $Abercrombie & Fitch(ANF)$ $Ralph Lauren(RL)$