Lululemon Is A Buy

12/15/14 05:41:18 PM

by Koos van der Merwe

When the price of a stock traces a saucer bottom, you better put it on your watchlist.

Security: LULU
Position: Accumulate

On December 11, 2014 Lululemon Athletica, Inc. (LULU) announced financial results for the third quarter ending November 2, 2014. The results were better than expected, and the price of the stock immediately jumped up by 9.4%. A look at a chart shows that technicals anticipated this jump in price.

Figure 1. Saucer Bottom. On this daily chart of Lululemon (LULU) the stock price traced a saucer bottom from $55.63 on April 3, 2014. On December 11, 2014 the saucer pattern looked like it could be near completion.

Graphic provided by: AdvancedGET.

The daily chart in Figure 1 shows how the stock price traced a saucer bottom from $55.63 on April 3, 2014. At $52.26, the price on December 11, 2014 at the time I wrote this article, the saucer bottom could be nearing completion. A gap has formed as shown on the chart. The price may drop to fill the gap, a trend suggested by the relative strength index (RSI) which is at overbought levels, could be trending down and suggesting a sell. A move above the resistance line at $52.26 will see the price rise to the target $70.77 (54.11-37.35 = 16.76 + 54.11 = 70.77). Note the JM Internal Band buy signal given on October 22, 2014 when the price was $41.61. The JM Internal Band is a 15-period moving average offset by 2% positive and 2% negative. A move above the upper band suggests a buy signal, and below the lower band a sell signal.

Figure 2. Elliott Wave Count. On this weekly chart of LULU you see how the stock price rose in a five wave Elliott count from $2.16 in February 2009 to $81.37 by April 2012.

Graphic provided by: AdvancedGET.

The weekly chart in Figure 2 shows how the stock price rose in a five wave Elliott count from $2.16 in February 2009 to $81.37 by April 2012. The share price then fell in an ABC correction to a low of $36.20 by June 2014. The stock appears to be rising in a WAVE I of a new bull trend, a trend confirmed by a rising RSI. The high of WAVE I could be $70.77, as suggested in Figure 1.

LULU looks like a buy at present levels, and I would be a buyer on any pullback. However, I would keep the WAVE II correction suggested on the weekly chart in mind, and keep my stops close. Once WAVE II is complete, I would be a buyer for the long-term.

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.

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TECHNICAL ANALYSIS

Lululemon Is A Buy

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