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WEDGE FORMATIONS


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.

FIGURE 1: LULULEMON, WEEKLY
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.

FIGURE 2: LULULEMON, DAILY
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: petroosp@gmail.com

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