DailyPlay – Opening Trade (LULU) – July 18, 2024

LULU Bullish Opening Trade Signal

Investment Rationale

Lululemon Athletica Inc. (LULU) has been out of favor for the past 8 months, but its time take another look now. The charts are beginning to show signs that sellers are exhausted, while the fundamentals are becoming compelling. With improving technical and fundamental outlooks, LULU presents an attractive risk to reward for long exposure.

Technical Analysis

After peaking in Dec above $500, LULU has declined over 40% since then. However, recent new lows have been coupled with positive divergence, suggesting that sellers are starting to get exhausted and further downside is potentially limited. Momentum is also showing signs of bottoming out, which aligns with the notion of a potential near-term recovery.

LULU – Daily

Fundamental Analysis

And when we look at the business, LULU is trading at 20x forward earnings (slight discount to the S&P 500) despite decent EPS and revenue growth expectations of 11% and 10%, respectively. These growth rates are supported by strong net margins of 16%. The valuation is attractive compared to the broader market, suggesting that LULU may be due for a rebound as investor sentiment shifts. 

Trade Details

Strategy Details

Strategy: Long Call Vertical Spread

Direction: Bullish Debit Spread

Details: Buy to Open 2 LULU Aug 16th $290/$320 Call Vertical Spreads @ $9.97 Debit per Contract.

Total Risk: This trade has a max risk of $1,994 (2 Contracts x $997) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $997 to select the # contracts for your portfolio.

Counter Trend Signal: This is a bullish trade on a stock that has bounced off support and is expected to continue higher.

1M/6M Trends: Bearish/Bearish

Relative Strength: 1/10

OptionsPlay Score: 108

Stop Loss: @ $4.99 Credit. (50% loss of premium)

View LULU Trade

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

PLEASE NOTE that these prices are based on Wednesday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

View LULU Trade