Lululemon Athletica (LULU) - Get Report reports quarterly earnings after the closing bell on Thurs., Sept. 5. The stock is above a long-term "golden cross" on its daily chart, but its weekly chart will be negative on a disappointing reaction to earnings. My call is to countertrade earnings volatility. A positive report will lead to a new high with its quarterly risky level at $198.82. A negative reaction will likely cause weakness to its 200-day simple moving average at $160.33. The stock opened Thursday above its 50-day simple moving average at $183.82, which favors the bullish outcome for now.
Lululemon is a play on technical momentum as its P/E is elevated at 44.33 and it does not offer a dividend, according to Macrotrends. With declining momentum value, investors should wait for share price weakness.
The stock closed Wednesday at $180.70 up 48.6% year to date and in bull market territory 63.2% above its Dec. 24 low of $110.71. The stock set its all-time intraday high of $194.25 on July 31.
Analysts expect Lululemon to earn between 89 cents and 93 cents per share when it reports after the closing bell on Thurs., Sept. 5. The company has a nine-quarter winning streak in terms of beating earnings-per-share estimates. The company is becoming more of an athletic brand going beyond the iconic yoga pants line. Expansion is expected to include shoes, personal care products and menswear. Back on March 28 the stock gapped higher on earnings and continued higher through its earnings report on June 12. This tracked the stock to its all-time intraday high of $194.25 set on July 31. Since then, concerns have risen with regard to tariffs and traffic at the malls.
Daily Chart for Lululemon
Courtesy of Refinitiv XENITH
Lululemon has been above a "golden cross" since Sept. 1, 2017 (not shown on the chart) when the stock closed at $61.69. A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving and indicates that higher prices lie ahead. The stock traded back and forth around its 200-day simple moving average between Dec. 7 and Jan. 3 as the stock rose from $120.82 and $124.06. The stock avoided a "death cross" as February began. On March 27, the company reported solid earnings, which resulted in the huge price gap higher on March 28. The stock is well above its semiannual and annual value levels at $142.80 and $116.23, respectively. Since its quarterly and monthly risky levels are above the chart at $198.82 and $221.65, respectively, a positive reaction to earnings could result in a new all-time intraday high for the stock.
Weekly Chart for Lululemon
Courtesy of Refinitiv XENITH
Lululemon will have a negative weekly chart, given a negative reaction to earnings. This happens if the stock ends the week below its five-week modified moving average at $182.57. The stock is well above its 200-week simple moving average or "reversion to the mean" at $94.72 last tested during the week of Sept. 29, 2017 when the average was $57.43. The 12x3x3 weekly slow stochastic reading is projected to slip to 61.90 this week down from 62.93 on Aug. 30.
Trading Strategy: Buy weakness to its 200-day simple moving average at $160.33 then add to positions on weakness to semiannual and annual value levels at $142.80 and $116.23, respectively. Reduce holdings on strength to the quarterly and monthly risky levels at $198.82 and $221.65, respectively.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, the latest on Aug. 30. The quarterly level was changed at the end of June. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.