Can Lululemon Retest the Highs After Earnings?

Shares of Lululemon have done great this this year but have been consolidating for a few months now. Will earnings create an upside catalyst?
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There have been some anointed retailers in 2020, with Lululemon Athletica  (LULU) - Get Report being one of them. Will that translate to a post-earnings rally?

The company is scheduled to report its third-quarter earnings report after the close of trading on Thursday.

With a strong brand, excellent omni-channel operation and strong consumer spending this holiday season, bulls are excited for Lululemon to report. Plus, sales should continue to see a solid rebound in China.

While Lululemon stock has done quite well - up 58% this year and 184% from the March low - the stock has been stagnant for the last few months.

For instance, despite the large rally, Lululemon is up just 15.5% over the past six months. Further, the stock is actually down 9% from its all-time high on Sept. 2.

About a week later it reported earnings and sold off as a result. Will that happen again?

Trading Lululemon

Daily chart of Lululemon stock.

Daily chart of Lululemon stock.

Obviously, we don’t know which way the stock will go when it reports earnings. However, it could have a ripple effect throughout the retail space, particularly for other strong brands, like Nike  (NKE) - Get Report for example.

Lululemon continues to hold up over its key moving averages, although this week has been a bit harder for bulls.

Beginning on Nov. 16, Lululemon began a large rally, climbing in 12 of 14 trading sessions. However, it has declined each day this week and is about flat so far on Thursday.

Seeing this kind of cooling off price action actually bodes well for bulls. It would have been far more difficult to get a post-earnings rally had Lululemon stock retested or took out its prior all-time high.

So now what?

On a bearish reaction, I would first like to see the $351 to $355 area hold as support. The 21-day moving average comes into play near the latter, while the 161.8% extension from the March low to the February high comes into play near the former.

Should the correction blow through these levels, I want to see the 50-day and 100-day moving averages act as support. Below could put the $320 area on the table.

On the upside, the first target is the December high, at $383.54. Above that opens the door to the all-time high and the two-times range extension, up at $399.90 and $403.55, respectively.