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That Lulu Of A Lululemon

11/29/10 02:48:45 PM
by Koos van der Merwe

Lululemon Athletica discovered the Oprah effect on November 19, 2010. At least that's what the various financial newspapers wrote.

Security:   LLL-T
Position:   Sell

A mention of the trendy Vancouver, BC, sporting-goods chain on Oprah Winfrey's TV show sent shares up 5%. Shareholders of the stock have had quite a rise, as we can see on the weekly chart in Figure 1.

Graphic provided by: AdvancedGET.
Figure 1 shows how the share price rose from $26.63 on July 27 when it was listed on the Toronto Stock Exchange to a high of $58.77 by October 26, 2007, and then slowly fell along with the market correction until March 2009, when it bottomed at $5.74. From that date it rose strongly in five waves to its present high. The chart suggests that this would have occurred whether or not Oprah had said anything.

Graphic provided by: AdvancedGET.
The daily chart shows how strongly the price has risen, from the low of $5.74 in five waves to a high of $47.80 when it corrected to a low of $33.11 in what looks like a diagonal triangle. It "looks like a diagonal triangle" because the price rather than adhere to its support line broke below it to $33.11, then rose to test it and and broke through it on a gap finding resistance on the intermediary trendline as shown on the chart. Oprah Winfrey's endorsement pushed it through the resistance level of the trendline, to the high of $55.99. Volume was above average for a short while but soon fell below average because of Thanksgiving or because the relative strength index (RSI) is at overbought levels. I believe the latter.

By all accounts, the chart is suggesting that the price should now fall to the support level X-Y with the RSI at the 50 levels.

Whatever the outcome, and in spite of Oprah Winfrey's endorsement, and even with Xmas approaching, I would not be a buyer of the stock at the moment.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

Address: 3256 West 24th Ave
Vancouver, BC
Phone # for sales: 6042634214
E-mail address:

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