MorningWord 12/8/16: LULU Lemmings

by Dan December 8, 2016 9:24 am • FREE ACCESS

Regular readers know that we rarely start a trade idea with a technical input, but a securities’ chart often helps inform our thoughts on sentiment, and can be very useful for choosing strikes for options trades. On Tuesday we previewed Lululemmon’s (LULU) fiscal Q2 results, and while the stock’s 30% decline from its 52 week highs made in September demonstrate investor displeasure with the company’s fundamentals, the stock’s chart had a sort of coiled spring feel to it.

LULU’s results are out. They were better than expected with a full year guide up, and the stock is up 15% in the pre-market, well above the implied move of 9% (we detailed a stock alternative targeting a move to 67.50 in the preview). With the stock trading just below $70, having broken out of its nearly two month trading range between $55 and $60 and went to where technicians might have guessed at the June breakout level and the Sept gap level:

LULU 1yr chart from Bloomberg
LULU 1yr chart from Bloomberg

 

Oh and Jack Dorsey, the CEO of Twitter (TWTR) and of Square (SQ) had a day yesterday with both stocks up about 6.5%, the day after he was interviewed by Recode’s Kara Swisher and Jason Del Rey at their Code Commerce event:

While we are on charts, I suspect TWTR has resistance at the low $20s with obvious support at $14:

TWTR 1yr chart from Bloomberg
TWTR 1yr chart from Bloomberg

The problem with TWTR right now is that if they could not meaningfully beat on new users and monetization even after their platform helped elect a President and is making news daily during the transition with tape bombs. If they are unable to convert these new eyeballs (for instance, all these tweets are embedded in stories about the tweets) then the stock will be right back at technical support, until potential buyers come back.

As for Square, a retest of the prior all time highs seems to be in the offing, after having filled int the May earnings gap:

SQ since 2015 IPO from Bloomberg
SQ since 2015 IPO from Bloomberg

Last week I started taking a closer look at SQ from a fundamental standpoint, and it is a very interesting story when you consider how fast their software and data sales are growing, despite being about a quarter of their total sales away from payments. We’ll take a close look on Square here on the site soon.