Trading the squeeze in Lululemon (LULU)? Here’s the lowdown on my yoga pants. (February 23, 2015)
I want to look at Lululemon ( NASDAQ:LULU ) here. They do not report their earnings until the end of March so you’ve got over a month for this stock to be trading without much of a catalyst. I like that, because you can see for a while here this stock has been trading right around 66.00, 65.00, 67.00, in that tight trading range. All the while, every single day actually, every day, trust me, except the weekends; the 50-day moving average has been creeping higher, and higher, and higher.
Why is it doing that? Boys and girls, it’s a function of math. As long as the stock trades above the 50-day moving average then each close will actually raise that price. Why is this important? Well, lets take a walk down memory lane back here to November. See how the stock was in a squeeze that was not even as tight here, as it is here? So you’ve got this stock trading in a tight squeeze right here and then; Boom! It moves out. What’s the deal? It’s right at the 50-day moving average.
Here, what I’m hoping for, and I know hope isn’t a method, it’s a hell of a campaign slogan, it doesn’t work for trading. What I’m hoping though is the stock trades sideways long enough for the 50-day moving average to catch up to it, which gives it a much better chance of moving a lot. If, and that’s a big word, if the stock breaks out above say 67.00, we’ll say 68.00, in fact we’re going to set a price alert for members at 67.60. If the stock hits 67.50 you’re going to get an email with this portion of the video in it where I say buy, buy, buy.
So this is really what we’re looking for, we’re looking for this stock to be trading sideways. The longer it trades, within reason, the better. I want to see this stock trading sideways, I want to see it trading in a tight range, I want to see volume be lower than average. Because when volume is lower than average that means that the stock isn’t really in this severe distribution or anything. It’s not like there’s a massive amount of stock changing hands.
It’s more like buyers and sellers are kind of complacent, that they’re just kind of accumulating the stock, “Oh I think I’ll sell some or whatever.” So then ultimately if this stock does kind of break out of this squeeze that has really kind of lulled everybody in to compliancy, if it does that then you’ll see this stock really move. It’s not really in a short squeeze, short ratio is less than six days to cover, about 20 percent of the float is short, I don’t know what the average is for Lululemon ( NASDAQ:LULU ) but that’s probably about the way it is.
Anyway, I think this is a stock that you can own now in anticipation of the squeeze. And I would just say as long as the stock stays above the 50-day moving average it is a stock that you can hold; you can just hold the stock. I know they’ve come up a long way already; I’ve just been in their store in Minnesota, one of the stores in Minnesota in an undisclosed location, where I did try on some yoga pants. And you’ll be happy to know that I did buy them, but only to wear in the privacy of my own home or in the local yoga studio; neither of which you’ll see me wearing those nice pants.
Anyway, with that said, hopefully this video has been helpful as well as entertaining with some visual images in there that are really going to help you with your trading.
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