Trading Strategies For Lululemon Stock Before And After Q1 Earnings

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

When the Vancouver-based apparel giant printed its fourth-quarter results on March 28, the stock soared over 12% the following trading day and subsequently confirmed a fairly consistent uptrend that brought Lululemon to a May 5 high of $189.06.

For the fourth quarter, Lululemon printed a beat, reporting adjusted earnings per share of $4.40 compared to the $4.26 consensus estimate. The company reported revenues of $2.77 billion, which beat the average estimate of $2.7 billion.

For the first quarter, analysts estimate Lululemon will report earnings of $1.98 per share on revenues of $1.92 billion.

Leading up to the event, Telsey Advisory Group analyst Dana Telsey reiterated an Outperform rating and maintained a $425 price target on Lululemon. The price target suggests almost 30% upside for the stock.

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 lost support at the 200-day simple moving average (SMA) on Thursday and is trading in a downtrend.

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 June 2 is 8.1%.

Want direct analysis? Find me in the BZ Pro lounge! Click here for a free trial.

The Lululemon Chart: Lulu has been trading in a downtrend since May 5, but hasn’t formed a lower high since May 18, making the likelihood of a bounce high. The stock was also working to print an inverted hammer candlestick on Thursday, which could indicate higher prices will come on Friday.

• If Lululemon receives a positive reaction to its earnings print and regains the 200-day SMA as support, bullish traders can watch for the stock to print a possible higher low over the next few trading days, which would negate the downtrend.
• If Lululemon falls further following the news, a bounce will likely come over the next few trading days because Lululemon’s relative strength index is measuring in at about 23%. When a stock’s RSI reaches or falls under the 30% mark it becomes oversold, which can be a buy signal for technical traders.
• Lululemon has resistance above at $329.54 and $347 and support below at $315.90 and $304.38.