Lululemon (LULU), Under Armour (UAA) and Ulta Beauty (ULTA) — all working…but don’t buy any more right now. (June 21, 2019)
I want to look at our three stocks again; it will probably be the last time and then we will switch up to some other things. Lululemon ( NASDAQ: LULU ), Under Armour ( NYSE: UAA ), and Ulta ( NASDAQ: ULTA ). Lululemon ( NASDAQ: LULU ) is on our Growth Stock List and that list is doing really well. I mentioned that the stock gapped up on earnings and then traded lower but then held its ground here. So this was really some pretty solid support here; down at about 170.00, really 171.00, solid support. Then the stock broke out here and this is where it really peaked out.
Here’s where we are right now, at least in my analysis. Longer-term you can see the stock wanting to move up. However, I would be remiss if I did not point this out, we’ve got higher lows here and we’ve got higher highs but they are converging. Now, this is a weekly chart so this could take a while for this to play out. But this rising ledge like this, often times, what happens is it ultimately looks like water flowing out of a garden hose. I am not saying that is going to happen here but it is really important that you understand how these things work.
So with rising lows and rising highs, but they are converging, it tells you that there is starting to be more agreement among the bulls and bears, as far as what the right price is. And after the kind of run that it’s had then the next move COULD be down. I am not ready to make that call yet because the stock is still where it is in a really bullish configuration. Price is above the 20 and the 50-day moving average and they’re above the 200-day and they are all trending higher. So you can’t jump the gun here.
What I would do is this: You are long the stock, maybe you took some profits here, and then you are waiting for the stock to come back and test. That’s what I am waiting for this to do. If Lululemon ( NASDAQ: LULU ) comes back, it was down on a pretty flat day in the market but this definitely took it on the chin. If the stock gets down here and then starts to rebound I would be buying again. If it doesn’t rebound I wouldn’t be buying.
With Under Armour ( NYSE: UAA ), this is the operative chart here, this weekly chart. We look at this break out here, this is almost a classic volatility squeeze, Phase 1, 2, 3 and we are now in I would say, Phase 2. This is how that works; we got a squeeze here and then the first phase in this breakout is a rally up on heavier than average volume; that happened. And then at some point a pullback, that’s Phase 2. Phase 2 is really where the rubber meets the road because if the stock keeps pulling back, deeper into Phase 2, deeper into Phase 2, the further it falls before finding some support the weaker the breakout is, obviously.
Think about it, the stock breaks out, it just does that and then it runs higher, that’s a pretty strong breakout. The stock does that, then it pulls back, and then it does that, that’s a pretty weak breakout, that’s a fakeout. Right now we are actually in the stage where we are looking to see is how strong this breakout was. So what we are looking for is for Under Armour ( NYSE: UAA ) to, I would hope to hold it’s own at 24.00, 25.00, something like that. And if it pulls back to that level and then holds up and then starts rallying higher, now we’re on to something. And the way the pattern looks, it sure looks bullish in that way but we don’t want to predict that.
Spotting a pattern does not entitle you to make money under the assumption that the pattern is going to play out as you think it will. You just have to watch it and understand the dynamics. So we look at the daily chart, this is still pretty sloppy so you want to wait for the stock to pull back and run its course on Phase 2. Even if it pulled back to 24.00, that would still be okay, that’s still within the margin of error. If it pulls back much more than that then you don’t want to be in this stock.
Then Ulta ( NASDAQ: ULTA ) is still kind of flirting with the same level here so not a whole lot going on. As I look at all of these stocks, frankly, Under Armour ( NYSE: UAA ) looks like it has the most promise just because we can kind of see what’s happening. We are looking to see whether this weekly squeeze is going to play out, but none of these stocks, right now, is a stock that I would say, “Rush out and buy it in the morning.”
If you are long Lululemon ( NASDAQ: LULU ), and I am, just say long the stock. If you are long Under Armour ( NYSE: UAA ), and I am not, just brace yourself for a little bit more of a pullback, I wouldn’t buy it yet. And if you are long Ulta ( NASDAQ: ULTA ) that is a little bit trickier thing here. We need to really see more of a pullback here before we get a sense of whether this move is going to be complete. If you recall, we thought that we were going to get this kind of move here but then over the last couple of days it has just given us more kind of sideways drift. So let this thing settle out, it will settle out, I promise you.
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