This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Stretch for Lululemon's Downward Slog

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.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
LULU $63.10 -1.44%
YHOO $44.13 -0.69%
AAPL $124.25 -0.14%
FB $81.66 -0.67%
GOOG $542.56 -0.99%

Markets

DOW 17,698.18 -77.94 -0.44%
S&P 500 2,059.69 -8.20 -0.40%
NASDAQ 4,880.2280 -20.6570 -0.42%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs