On Monday, I wrote a Real Money Pro trade idea for Lululemon based on an actual setup I use. Take a look and see if you agree.
(If you don't have a membership, get a free one to see if you can profit. Education is a lot cheaper than losses and missed opportunities. Anyway, if you're interested in buying the current dip, or want another reason not to sell, it's worth your time.)
Usually, after a stock gaps lower, you can anticipate one to three days of follow-through. In other words, you should almost never buy the first day of a "crash." In the case of Lululemon, a relatively lower risk point to buy this type of dead-cat bounce is during the third day. Because LULU is also experiencing weakness on comments by management, Monday during the close could make sense as well.
For long-term investors, the story isn't quite as rosy. The best medicine for poor guidance is better guidance. (Big surprise, I know, but how long you can expect for a recovery?) Usually, it takes at least a quarter or two of favorable results before a company's prospects improve enough to propel shares above the original gap lower. Otherwise, in about a week, history demonstrates you should expect weakness moving forward.
With option premium elevated from panicking investors, selling covered calls against your shares is one strategy to lower your holding risk. Look to sell calls late on Wednesday or into Thursday if shares are recovering above $60 per share.At the time of publication, Weinstein had no positions in securities mentioned, but has live bids to buy LULU. Follow @RobertWeinstein This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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