Lululemon Athletica Inc. (LULU) makes iconic athletic apparel and accessories, including the forever popular yoga pants. Staying in shape has been a theme in recent quarters as a growing economy and higher-paying jobs have men and woman flocking to fitness centers. Lululemon is set to report earnings results after the closing bell on Tuesday, March 27.
The stock closed Monday, March 26, at $80.34, up 2.2% year to date and up 7.3% since setting its 2018 low of $74.90 on Feb. 6. The stock is 4.3% below its all-time intraday high of $83.98 set on March 6.
Analysts expect Lululemon to report earnings per share of $1.27 to $1.30 when it releases results on Tuesday. The company is expected to continue its growing sales pace, but recent slower retail sales numbers could result in a negative reaction to earnings given the possibility that Lululemon's weekly chart could be downgraded to negative this week. (See also: Lululemon: A Hot Stock in Yoga Pants.)
The daily chart for Lululemon
Lululemon has been above a "golden cross" since Sept. 1, 2017, when the stock closed at $61.69. A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving and indicates that higher prices lie ahead, and this has been the case for shares of Lululemon. This tracked the stock to its all-time high of $83.98. The horizontal line at the bottom of the chart at $67.58 is my semiannual value level of $67.58. The line just above Monday's close is this week's risky level of $81.34.
The weekly chart for Lululemon
The weekly chart for Lululemon is neutral, with the stock above its five-week modified moving average of $79.88. The stock is well above its 200-week simple moving average of $60.37, which is the "reversion to the mean," last tested during the week of Sept. 29, 2017, when the average was $57.43. The 12 x 3 x 3 weekly slow stochastic reading is projected to slip to 68.54 this week, down from 73.61 on March 23. On a negative reaction to earnings, this weekly chart could quickly become negative. A close above $79.88 will cause the weekly chart to be negative.
Given these charts and analysis, investors should buy Lululemon shares on weakness to my semiannual value level of $67.58 and sell on strength to my weekly risky level of $81.34. Traders should consider holding off on the sale if the stock caps above $81.34 in reaction to earnings. (For more, see: Understanding Lululemon's Business Model.)