Post-Earnings Sprint Pushes Lululemon Athletica inc. Past Resistance


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Athletic apparel issue Lululemon Athletica inc. ( LULU ) was in the spotlight this morning, as the company reported on its second-quarter numbers. For the quarter, net revenue increased 56% to $152.2 million, while earnings arrived at 30 cents per share. Analysts had predicted a slimmer profit of just 24 cents per share. Meanwhile, LULU also raised its fiscal year guidance to earnings between $1.18 and $1.22 per share -- topping the current consensus estimate for earnings of $1.15 per share.

Traders seemed pleased by these results, with the shares soaring some 12.3% so far today to place the stock back above its important 10-week and 20-week trendlines. Despite the stock's technical fortitude in 2010 (LULU has added 19% year-to-date), the retailer has been in a bit of a rut lately, with its 10-week and 20-week trendlines pressuring the shares lower since the end of July.

Weekly Chart of LULU Since June 2010 With 10-Week and 20-Week Moving Averages

However, in addition to regaining the support of this intermediate-term duo, today's positive momentum has also catapulted LULU back above the $40 level -- a significant point of both resistance and support to the shares in 2010.

Option players, too, have taken note of LULU today, with roughly 15,000 contracts changing hands by midday -- seven times the retailer's expected single-session volume of fewer than 2,000 contracts. Calls have been in especially high demand, with 8,655 of these bullish bets changing hands.

Given LULU's technical feats today, it's no surprise that the September 40 call has been the day's most popular option. Roughly 2,300 contracts have changed hands on this strike -- the bulk of which traded at the ask price, indicating they were likely purchased. While we cannot yet determine whether these calls are, in fact, fresh positions, with LULU hovering around $40.31, these calls are right at the money.

For the September series, peak call open interest of nearly, 5,000 contracts can be found at the 38 strike -- which is now comfortably in the money. Meanwhile, peak put open interest of some 3,000 contracts can be found at the 30 strike. As front-month expiration draws closer -- it happens after the close next Friday, Sept. 17 -- an unwinding of these out-of-the-money puts could add additional fuel to LULU's fire.

Meanwhile, with short interest accounting for a lofty 19% of the stock's total available float, LULU could also benefit from a potential short-covering rally. In fact, it would take over three weeks for all of these short positions to unwind, at LULU's current pace of trading. As LULU continues its post-earnings run on the chart, a fervent rush to cover by the shorts could help to push the shares even higher.

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This article appears in: Investing , Options

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