Bull & Bear: Is LULU Losing Its Momo?

Shares of Lululemon Athletica Inc. LULU recently hit a high of $85.28, but have been pulling back sharply ever since. While shares looked like they would continue to plunge lower and ultimately test the 50-day moving average, they have since rebounded and are now testing the 20-day moving average from below. This places the stock at an interesting junction. Shares will either make a sharp move one way or the other, thereby confirming the stock's long-term up-trend by moving higher or confirming an intermediate-term top by selling off. If LULU were to move lower, it is likely that they would test the 50-day moving average and perhaps the top of the most recent gap, at roughly $64.00. If LULU were to move higher, the only major resistance point shares would encounter would be the recent high, at $85.28. So…What's the Trade? If you are bullish on the name, you might consider buying the April $80/90 call spread for a net debit of $2.00. This gives you highly leveraged upside exposure, while protecting you from shares falling lower. If you are bearish on the name, you could consider buying the April $75/65/55 put tree for a net debit of $2.85. This gives you downside exposure to the name, while being net short volatility and net long shares at a much lower price. Your max gain is taken when shares trade between $65 and $55 and you do not begin to loose money until LULU moves over 37% lower. Lululemon Athletica Inc. is a designer and retailer of technical athletic apparel primarily in North America. Its yoga-inspired apparel is marketed under the lululemon athletica brand name. The company offers a line of apparel and accessories, including fitness pants, shorts, tops and jackets designed for athletic pursuits, such as yoga, running and general fitness. As of January 31, 2010, its branded apparel was principally sold through 124 stores that are primarily located in Canada and the United States. As of January 31, 2010, its retail footprint included 45 stores in Canada, 70 stores in the United States and nine franchise stores in Australia.