Trading Strategies For Lululemon Before And After Q4 Earnings

Zinger Key Points
  • Analysts estimate Lululemon will report earnings of $4.26 per share on revenues of $2.7 billion.
  • Lululemon is trading in a confirmed uptrend and on Tuesday, the stock regained the 200-day SMA.

Lululemon Athletica, Inc LULU is set to print its fourth-quarter financial results after the market closes Tuesday.

When the Vancouver-based apparel giant printed its third-quarter results on Dec. 8, the stock plunged 12.85% the following trading day and subsequently confirmed a fairly consistent downtrend that brought Lululemon to a March 15 low of $286.58.

For the third quarter, Lululemon printed a beat, reporting adjusted earnings per share of $2 compared to the $1.96 consensus estimate. The company reported revenues of $1.86 billion, which beat the average estimate of $1.81 billion.

For the fourth quarter, analysts estimate Lululemon will report earnings of $4.26 per share on revenues of $2.7 billion. Traders and investors will be watching to see if Lululemon’s holiday sales boosted the company’s top and bottom line.

Leading up to the event, three analysts weighed in with adjusted price targets, with each firm lowering their price target. The lowest new price target comes in at $368 and the highest at $470.

The reaction Lululemon receives post-earnings is likely to be the deciding factor on whether the stock will trade in bullish or bearish territory for the time being. From a technical standpoint, Lululemon looks set to trade higher after confirming a new uptrend.

Of course, holding stocks or options over an earnings print is akin to gambling because stocks can react bullishly to an earnings miss and bearishly to an earnings beat. Options traders, particularly those who are holding close dated calls or puts, take on extra risk because the institutions writing the options increase premiums to account for implied volatility.

The implied weekly move for options expiring on March 31 is 8.1%.

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The Lululemon Chart: Lulu’s uptrend began on March 15 and since that date, the stock has inclined over 10%. Lululemon’s most recent higher low was formed on Friday at $306.59 and the most recent confirmed higher high was printed at the $312.20 mark the day prior.

  • On Tuesday, Lululemon was working to print a hanging man candlestick, which could indicate the next higher high has occurred and the stock will retrace lower on Wednesday. If that happens, bull traders will want to see the stock break down from the lower ascending trendline of a rising channel pattern.
  • If Lululemon breaks down from the channel, a longer-term downtrend could be on the horizon. If the stock continues to trend higher within the channel, or breaks up from the pattern, Lululemon will remain above the 200-day simple moving average, which would give bullish traders more confidence going forward.
  • Lululemon has resistance above at $329.54 and $347 and support below at $315.90 and $304.38.

screenshot_286.pngRead Next: Lululemon Athletica Likely To Report Higher Q4 Earnings - Here's A Look At Recent Price Target Changes By The Wall Street's Most Accurate Analysts

Photo via Shutterstock. 

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