Lululemon Athletica inc. (NASDAQ: LULU)

lululemon athletica inc., an athletic apparel company, together with its subsidiaries, designs, distributes, and retails athletic apparel and accessories for women, men, and female youth. It operates through two segments, Company-Operated Stores and Direct To Consumer. The company offers pants, shorts, tops, and jackets for healthy lifestyle and athletic activities, such as yoga and running; other sweaty pursuits; and athletic wear for female youth. It also provides fitness-related accessories, including bags, socks, underwear, yoga mats, and water bottles.

Take a look at the 1-year chart of Lululemon (NASDAQ: LULU) below with added notations:

1-year chart of Lululemon (NASDAQ: LULU)

Over the past month or so, LULU has fallen into a sideways trading range. While in the range, the stock has formed a common pattern known as a rectangle. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern.

The LULU rectangle pattern has formed a resistance at $59 (red), which has also been prior support area, and a $55 support (green). At some point the stock will have to break one of the two levels.

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The Tale of the Tape: LULU is trading within a rectangle pattern. The possible long positions on the stock would be either on a pullback to $55 or on a breakout above $59. The ideal short opportunity would be on a break below $55.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!

Christian Tharp, CMT

Follow me on Twitter: @cmtstockcoach