Lululemon Athletica Inc. - LULU - close 37.80 change +0.58 stop 48.10

Company Description:
lululemon athletica inc. is a designer and retailer of technical athletic apparel primarily in North America. Its yoga-inspired apparel is marketed under the lululemon athletica brand name. The Company offers a line of apparel and accessories, including fitness pants, shorts, tops and jackets designed for athletic pursuits, such as yoga, running and general fitness. As of January 31, 2010, its branded apparel was principally sold through 124 stores that are primarily located in Canada and the United States. As of January 31, 2010, its retail footprint included 45 stores in Canada, 70 stores in the United States and nine franchise stores in Australia.

Target(s): 35.25, 34.05, 33.00
Key Support/Resistance Areas: 42.25, 39.75, 37.00, 35.16, 32.75
Time Frame: 1 week

Why We Like It:
LULU has been whipsawing in a wide $10 range for the past 3 months and I think it is ready to let go to the downside. When it happens it should let go fast. LULU is maintaining one last trend line from its 7/09 lows to its 2/10 lows. But I'm not too concerned about this trend line holding with today's market environment. The retail sector is weak and LULU trades at a high P/E. The stock is below its declining 20-day and 50-day SMA's and there is a lot of congestion to keep any bounces under control. I suggest initiating short positions into strength. $39.25 provides an ideal entry point which we will use a trigger to enter short positions. I will also add that more conservative traders could wait until LULU tests its 50-day SMA from below which also corresponds with the back side of its most recent trend line that was broken this week. This is about the $40.00 are (see oval on chart) but I want to give us the best chance to get filled on the trade which is why I chose $39.25 as our official entry point. $39.25 is just below the highs of the past two days. We'll place an initial wide stop at $43.10 to account for volatility and will adjust it once we are in the position.

Suggested Position: Buy August $35.00 PUTS if LULU trades to $39.25, current ask $2.55, estimated ask at entry 2.00

Annotated chart:

Entry on July xx
Earnings 9/9/2010 (unconfirmed)
Average Daily Volume: 1.89 million
Listed on July 1, 2010