Here’s your plan for trading Lululemon (LULU). (October 09, 2012)
LULU XRT LULU
Good evening, Dan Fitzpatrick here at Stock and OptionMarketMentor.com on Tuesday, October 9th. Look, the market, let’s just say it was pretty interesting today. If you were a bear you were happy, if you were a bull, not so much. Okay look, I’m looking at Lululemon ( $LULU Athletica Inc ), this stock, I mean my gosh, look at the run that this has had in two months, from August not even two months, up almost 50 percent, came up to hit this resistance point and so now the stocks down three and a half percent today. So do you want to buy this? First thing you’ve got to do is a look at the weekly chart and see what it’s really looking like. Okay, we see this zigzag, zig-ag. What you want to do is ask yourself this; okay, we see where it is in relation to the 200-day moving average let’s look at past peaks; how’d it work out to buy there? Not so much, not good. How did it work to buy there? Not good. Even these areas down here, these tags of the upper Bollinger Band, ultimately you made money. Okay fine, problem is your entries still stunk. This is a stock that you don’t, and look at all your stocks in this way, this is a stock that in the short term it has not paid to buy on these tags of the upper Bollinger Band because you didn’t have to, stock drifted sideways for a while, sideways to down, here sideways to down, here same thing. So where are we now? Are we going to do this? Perhaps, actually probably, but we’ve got another dynamic, we’ve got a double top, that’s what I’m seeing here. So we look back at the daily chart and you can see the double top, here’s one, here’s another, so you look at the stock and say, “Well, it’s tagging the lower Bollinger Band.” No, I mean it is but it’s actually testing support. This is just not a stock that I would want to buy right here. Do you know why? Because all the folks who bought here, lot of them want to sell, this is what resistance is all about. So if you see any kind of move up in the stock it’s going to start having to chew through all this supply that’s created by former buyers who regret buying. I think this is going to have a tough climb, but I go a step further and look at the overall retail sector. The XRT ( $XRT SPDR S&P Retail (ETF) (NYSEARCA) ) had been looking really nice, you could say, if you were a little creative, that this was a cup and handle, really kind of not for reasons that the handle is not really a handle, but now we’ve got this hitting a lower high as well and now it’s starting to fall back. So the question is right here, right now, with retail at $62.93, is this a time where you step in and buy? Not after a lower high we’ve got this low here so it’s not that far above this prior low, but it is above the prior low. Why buy a falling knife on the first day that it started falling? You’ve heard me talk about the three-day rule of thumb, the first day the move started by the really, really smart big money, the next day the move is perpetuated by the semi-smart semi-big money, the money that’s smart enough to see what’s going on to catch it on the second day, finally by the third day of the only folks that are left to sell are those that tend to scratch their heads all the time anyway, in other words let’s just say really not so smart money tends to be the poorly capitalized traders, so keep that in your back pocket; by the way that’s a rule that I first saw Buzzy Schwartz talk about in “Pit Bull,” which is a fantastic book and I and commend it to you, it was published like ninety-eight years ago, its an old, old book but it still works, kind of like “Reminiscences of a Stock Operator.” Anyway, when I see the XRT ( $XRT SPDR S&P Retail (ETF) (NYSEARCA) ) having further to go then I look at Lululemon ( $LULU Athletica Inc ) and I see this testing support, no way on earth I’m looking to buy the stock. So if you’re long a stock I’m just telling you you’re playing the hope strategy, it’s not a method, it’s never been a method, it’s an emotion that has been mistaken by many for a trading methodology and it’s not. So if you happen to get a bounce, you happen to get any kind of a bounce off of this, great, sell it. If you’re long and you’re trading that hope strategy, sell it, you can always buy it back if it turns out that you were wrong; also make sure you know when earnings are, very important to know when earnings are on all these companies because that’s the stuff that’s going to provide the catalyst for this trade. Okay members, get over to the Strategy Session we’ve got some work to do; also if you haven’t checked out Option Market Mentor please do that it’s a $7.77 admission fee for the first month, it’s a risk free tryout, if you don’t like it we’ll give you your $7.77 back, I don’t care, I just want you over there if you are interested in trading options, if you’ve been unsuccessful at trading options, I’ve got the stuff for you, I want you to give it a try. If it doesn’t work for you, you know what? At least you tried. Okay, Dan Fitzpatrick, I’ll see you tomorrow. Free Chart