Here’s your trade on Lululemon ($LULU) (October 11, 2019)
Let’s look at Lululemon ( NASDAQ: LULU ) here. This stock is breaking out again, it broke out this first time here and then it faded, which is something that we were on, like no, we’re not going to buy a breakout like this. Now it’s in a tighter squeeze, less than 6 percent on the Bollinger Bandwidth and starting to push out again, so I think this stock can go higher. It is very risky to buy here simply because the last time it hit this level it failed. So you can expect some kind of selling there but the stock only had to move off the 50 by about less than 8 percent. Whereas, the move before, it moved over 12 percent from the bottom, actually, a lot more than that.
The point is, this stock didn’t have to get such a head start to get to t his point, it is kind of just breaking out. So you can be a buyer there, I opted not to, I bought earlier. But this is why I am showing you this stock, because of this little box there. I covered this just the other day, noting that what I like to do is draw boxes right where I am thinking about buying a stock. The box that I am drawing is, okay, if I am wrong how far down do I think the stock could go to where I would still be okay owning the stock?
And so I am looking at this day here, last Friday the 4th, and my sense was, okay, the stock had been kind of drifting lower. The 50-day moving average was support, back on this day, on the 3rd, the stock went as low as 185.36, we’ll call it 185.00. So now the stock is up here and I am thinking, okay, if I am buying it here then here’s my box. It starts right at the open and then if the stock falls down to test this level here, so it falls all the way through the box, what am I down? If I am buying up here at the top I am down 4 percent. If I am buying at the open, the day after here, I am down much less than that, I am down not even 3 percent, so this is a valid entry for me here and that’s what I did.
Now you have got to look at the same thing. Let’s say you are looking at this stock, you see Dan’s video over the weekend and you are looking at it on Monday. You go, “Okay, I am going to buy this stock first thing Monday morning so I am going to get it right here, about 202.00 or so. So how far could the stock go if it was going to test support? Well, support is clear down here at the 50-day moving average. You don’t want to put it there, that’s not logical, not logical, not logical, not logical, not logical, that’s logical. The last time the stock hit the 50 is when it rebounded. So now I am buying it here and the stock can fall all the way down to the 50, that’s 6.5 percent to 7 percent. That would still be okay; in a bull market given a stock a 6 or a 7 percent bit of room to work is fine. But we are not really in a bull market, we’re in a choppy bull market.
The bottom line is this, the market is really confused right now and so the last thing that I am going to do is give a stock 6, 7, 8 percent room. I want to be really, really precise on my entries, that’s why I took this entry back here and now I am just waiting to see how it resolves. I am not looking to add, I am just looking to see how the situation resolves. This would be my trade suggestion to you: If you are not in Lululemon ( NASDAQ: LULU ) I would be patient. The market had a big move today, everybody is, 300 points in the Dow ( INDEXDJX: .DJI ). Yes, it’s 27 thousand; okay, 300 points is not that big of a deal; still, people get excited. What I am thinking is, this stock is going to run out of steam sometime. If it pulls back and gives you a higher low, that’s when you want to be on this stock.
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