Lululemon Deal for Mirror Lifts Stock - Here's the Trade

Lululemon stock is jumping after the company's $500 million deal for Mirror. Here's how the LULU charts look.
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Lululemon Athletica  (LULU) - Get Report shares are off the highs of the day, but still up about 6%, after the athleisure-apparel company agreed to buy at-home fitness company Mirror for $500 million.

The all-cash deal lands Lululemon an up-and-coming workout company that enables customers to participate in live classes from the comfort of their homes. 

In a way, it’s not unlike Peloton  (PTON) - Get Report, the stock of which has flourished as investors flock to stay-at-home businesses. With gyms closed in many areas during the pandemic, Peloton continues to do well.

Lululemon investors are hoping that the Vancouver company can ride a similar wave of momentum with Mirror. So far, so good, if we’re basing those observations on the stock price alone.

Shares of Lululemon were working off the impact of a somewhat disappointing earnings report. For the quarter, the company missed on revenue estimates. The shares had surged to records ahead of the print.

Now they're jumping, and let’s see what the charts look like.

Trading Lululemon Stock

Daily chart of Lululemon stock.

Daily chart of Lululemon stock.

In mid-June, Lululemon stock corrected lower on earnings. While the 20-day initially acted as support, it failed to buoy the share price later in the month. 

However, $290 filled the role, acting as support on two different occasions during June after acting as resistance in late May. 

This is constructive price action for the bulls, particularly as the stock gaps higher on Tuesday and reclaims the 20-day moving average. It also cleared downtrend resistance.

After climbing toward $320, though, the shares were rejected. This level served as resistance ahead of earnings and will be a tough nut to crack for the bulls. Or at least it could be.

Should that nut be cracked, the bulls need to see Lululemon rotate over and close above the monthly high, which sits at $324.76. 

If that happens, the stock may find itself in a new bullish uptrend, potentially putting the $350 mark in play. Near this level, Lululemon stock will find the 161.8% extension.

On the downside, see that Lululemon holds the 20-day moving average. Below that figure puts $290 back in play, followed by the 50-day moving average and possibly the $260 breakout level.

In short, watch $320 to $325 on the upside and the 20-day moving average on the downside.