This is a bit more of a speculative long than we would normally take. I say that only in terms of its current position relative to its highs, as we normally like to buy something in a slightly more elevated position both short-term and long-term. Take a look at this daily chart of the last six months and you’ll see what I mean.
What a mess. For a trend follower there’s not much to hang on to there. It’s the kind of chart I normally wouldn’t give a second glance, but just as I’m always telling people the benefits of lengthening their timeframe and perspective, let’s look at the bigger picture to see the context of this period. Here’s the last two years on a weekly.
Looks better doesn’t it?
Given the explosive growth $LULU has had over the years, price-wise it finds itself in an unusual position of being exactly where it was a year ago. That’s some consolidation. That trendline of higher lows is particularly appealing, and I think we can use it in conjunction with recent price support as a near-term stop for a speculative long.
That $65.87-$66.80 area has acted as support several times in the last 4 months, and it’s the last of these that spurred what looks like a more sustainable rally having coincided with a strong bullish divergence (above) as price made a marginal new low late February.
Looking at the 3-month daily chart below, although volume has been low overall, it appears to be increasing on the up days, which is another positive sign, as we like to see signs of accumulation when trying to move away from a support or congestion area, suggesting that momentum can be sustained.
I’m also persuaded that a lot of the players in this traditional momentum name may have moved on in the last year as it remained rangebound, but with earnings expected next week, and showing signs of a renewed uptrend, I wouldn’t be surprised at all to see them return.
Shorter-term players might find giving something room of 10% or more too rich, but in the context of a longer-term uptrend where the upside could be many multiples of that, I’m very comfortable getting long here and using a clean break of $65.87 as our stop on a closing basis.