Lululemon Athetica Inc. (LULU) stock posted its seventh all-time high in just eight sessions on Tuesday, following May's dramatic breakout above the February high in the $260s. The stock has now lifted more than 190 points off March's 14-month low, highlighting extraordinary relative strength in a market environment that has offered just a handful of bull market advances since the pandemic broke out in the first quarter.

The retail giant is a major player in the profitable athletic apparel market, with enormous potential to outperform the majority of competitors. Analysts believe that Lululemon is taking market share from rivals, but the company has just reopened stores in the United States and Europe, highlighting the importance of the online portal, which has offered free workout sessions during the lockdown. This much-needed resource has underpinned customer loyalty during a tough period, setting the stage for healthy 2020 profits.

However, the stock's dramatic ascent may be nearing its end because the company reports first quarter 2020 earnings on June 11, and many strong stocks have endured sell-the-news reactions in recent weeks. In addition, Lululemon has offered few specifics on quarterly performance, which includes February, March, and April, the worst months for the pandemic. Finally, the advance has set off overbought technical readings, raising the odds for a decline that shakes out complacent shareholders.

LULU Long-Term Chart (2007 – 2020)

Long-term chart showing the share price performance of Lululemon Athetica Inc. (LULU)

The Canadian company listed on the U.S. exchanges in July 2007, opening at $12.50 and entering an immediate uptrend that topped out at $30.35 in October. The subsequent decline paused at the IPO opening print in December and broke down in March, entering a steep downtrend that posted an all-time low at $2.16 in March 2009. That marked a historic buying opportunity, ahead of a two-legged bounce that completed a round trip into the prior high in December 2010.

A 2011 breakout stalled in the low $80s in 2012, marking a formidable barrier that resisted 2013 and 2016 breakout attempts. Range-bound action found support in the $30s and $40s during this period, carving two higher long-term lows that finally yielded a breakout in January 2018. Price action ignored trade war headwinds through most of that year, topping out at $165 in the fourth quarter.

The stock broke out once again in March 2019, gaining ground in a channeled uptick that ended at $266.20 in February 2020. It got crushed during the freefall into March, dropping to the lowest low since January 2019, while the subsequent uptick unfolded at the same vertical trajectory. The advance completed a V-shaped pattern on May 21, yielding an immediate breakout that has added nearly 50 points in less than two weeks.

LULU Short-Term Chart (2017 – 2020)

Short-term chart showing the share price performance of Lululemon Athetica Inc. (LULU)

The on-balance volume (OBV) accumulation-distribution indicator topped out in December, two months before price, and posted a six-month low in March. Subsequent buying power reached resistance in April, ahead of a breakout that predicted price would soon follow. OBV has continued to gain ground in the past seven weeks, highlighting excellent accumulation that should limit downside pressure during an inevitable pullback.

The rally has now posted nine up days in a row, setting off overbought technical readings that predict a steep pullback. Price has also lifted 100% outside the top monthly Bollinger Band® at the same time, marking the third time that this has happened since September 2018. Multi-week declines follow each of those extensions, adding to red flags that warn market players to exercise caution if they want to protect profits.

The Bottom Line

Lululemon stock has carved an impressive series of new highs, but the stock is now overbought and overdue for a multi-week retracement.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.