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Sometimes an EPS and sales beat coupled with raised guidance doesn't instigate a rally. This happens to be the case with Lululemon Athletica LULU.
Underperformer In 2021: While the S&P 500 index has sprinted to a new all-time high on several occasions this year, Lululemon has gone in the opposite direction. After ending 2020 at $348.03, a four-day rally to start the year took the issue to its yearly high ($374.2) and high for close for the year ($367.29) on Jan. 7.
The issue hovered in the $360 handle, then a losing streak in 11 of the next 12 sessions knocked it to $329.51. It attempted to rebound on several occasions but never could sustain a rally.
The ultimate low of the decline was far beyond the yearly close when it bottomed on March 5 at $269.28. That low came in just below its June 2020 low ($284.29) and well above its May 2020 low ($213.97).
Big Rally Into The Print: As so common with stocks in long-term uptrends, they will rally into an upcoming earnings release. This certainly was the case with LULU as it sprinted to $321.30 over the next 12 sessions, which has turned out to be high for the rebound.
The issue attempted to reach that high on two other occasions: the following day of the high being made, March 24 ($319.79) and Tuesday ($320.58).
Adding further significance to this area is the issue made a high on March 2 ($321.25), three days before it collapsed to the low for the move. It should be noted that the high for the rebound was made on Tuesday at $317.09.
Good, But Not Good Enough: After the close on Tuesday, the company reported quarterly earnings of $2.58 per share, which beat the analyst consensus estimate of $2.49. The company reported quarterly sales of $1.73 billion, which beat the analyst consensus estimate of $1.66 billion. Also, the company raised first-quarter and 2021 guidance.
Price Action: Despite the solid report and guidance, there was something the Street didn't take a liking to.
It was evident from the after-hours price action that the issue was going to be under selling pressure. The author of this article identified the major resistance at $320 area as an area that must be breached or lower prices were to follow.
On the downside, potential support was identified at the midpoint of the recent low ($269.28 and $321.30), which comes in at $295.29. Also, $300 may provide some support as well since its splits the two lows in the issue from March 25 ($298.54) and March 26 ($302.48).
After a lower open, LULU attempted to rally but found sellers just beyond Tuesday’s low ($311.44) reaching $311.68 and reversed course. As of 12:30 p.m., the ensuing decline has taken the issue to $300.05 and is attempting to rebound.
The full discussion on the issue from Wedneday's show can be found here:
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