Let’s face it, sports apparel stocks have been in fashion in recent years, no pun intended. Specifically Lululemon Athletica Inc (LULU) and Under Armour Inc (UA), given the mega-trend in yoga and other apparel have benefited in building their brands. But older dogs such as Nike Inc (NKE) too have been part of the game and tagging along very well, in fact outperforming in recent months.
Off the 2009 lows all three stocks staged significant rallies along with the broader market and on the chart below look very much alike through a longer picture lens, technically speaking.
It is closer-up on the charts where all three of the above mentioned stocks look less stellar for the bulls, at least in the intermediate term.
Let’s start with Lululemon Athletica Inc (LULU), which since reaching its all-time high in May 2012 has formed a series of lower highs. The stock’s 50, 100 and 200 day simple moving averages are fairly useless for analysis, but it is worth mentioning that just a few days ago the stock again did find resistance at a confluence zone of the former two moving averages before slipping back down to a key support level again. The area near $66 has on and off served as support and resistance, dating back to May of last year. Since November this area has now been tested four times, which leads me to again remind investors that the more often a level gets tested the weaker its support/resistance. The $66 area also happens to coincide with the 50% Fibonacci retracement level of the move off the summer lows up to the September highs. Thus, any break below there should result in a move to at least the low $60s, or close to a 10% sell-off in the stock.
The chart of Under Armour Inc (UA) too has an important lateral support line, in this case closer to $44 – $44.50. Just like Lululemon Athletica Inc (LULU), this stock too has displayed a series of lower highs and any break on a daily closing basis below this support zone would usher in a significant new lower low. A first price target in such case would be near $40, or about a 10% move below the support zone.
The chart of Nike Inc (NKE) is the strongest of the bunch, but also the one with the most defined stop-loss level for swing traders looking to lean against it for a stab. On February 11th the stock made a new recent high but closed well off the daily highs, leaving behind a significant doji candle. The day’s high at $55.90 is the level to watch. The doji candle led to a series of lower highs, several of these daily candles also displayed long tails. If and when the stock snaps below $54 it too should be good for at least a 5% move to the downside.
Should the broader market have a few percentage points left in its recent downward consolidation, these three stocks could offer a little additional beta for those looking for high probability trade setups.