On December 7th I penned a piece right here (http://investorplace.com/2012/12/lululemon-ready-for-follow-through-buying/), discussing the high probability setup that had just flashed to buy the stock of Lululemon (NASDAQ:LULU) for a trade. Seven trading sessions later the stock came within $1 of my ideal price target near $79. That was close enough in my book to have qualified as a great trade. In case you missed the trade at the time, this stock is now again setting up for a high probability swing trade to the long side. Let’s have a look;
From a longer-term perspective the stock remains up big over the past two years and thus currently is still consolidating some of those gains.
Since November 2012 the stock has been trading in a range between $65 and $79, nicely oscillating back and forth. But all ranges eventually come to an end.
The rally from the August lows up to the September highs has now retraced 61.80% for the second time. For those not familiar, 61.80% is an important Fibonacci number and one that traders watch closely. This retracement level also happens to coincide with a horizontal support line and the low (near $65) of the trading range discussed above.
Just yesterday, on January 15th Lululemon (NASDAQ:LULU) dropped sharply intraday, nearly hitting the $65 level, only to rally in the afternoon, leaving behind a long tail on the daily candle. What is needed now is what we call a follow-through buying day, where the stock trades higher, thus confirming the bullish candle from January 15th.
Given that we have a confluence zone of support near the $65 level, marked by Fibonacci and lateral support, as well as a bullish candle, an aggressive trader could already consider taking an initial long position here. The more conservative approach however is to wait for follow through buying in coming days and setting a stop near $65.
Should the stock follow through and continue higher, the stock will then be in a new swing to the upside. An obvious upside target for those long the stock in the new swing would be near the previous high of $78. Should the stock in time manage to power through $78 a new trading opportunity may arise, which I will analyze if and when.