Lululemon has more room to fall: technical analysis | Financial Post

Lululemon Athletica Inc. shares have fallen 19% this year and close to 30% over the past 12 months, but Monica Rizk, technical analyst at Phases & Cycles Inc. in Montreal, thinks more losses are in store for investors in the yoga retailer.

“The stock may eventually have a recovery rally… but such an occurrence would merely provide a better exit price,” she said in a note to clients.

Ms. Rizk said the stock was generally in a long-term up-trend between 2009 and 2011, but settled into a large horizontal trading range mostly between US$60 and US$82 over the past year and a bit.

More recently, however, it has “decisively violated the bottom of the trading range” to confirm lower targets that suggest shares could eventually fall as low as US$30.

In particular, the falling 40-week moving average and the falling moving average convergence divergence (MACD) indicator confirm the yoga retailer’s negative share status.

“Lululemon could have a minor rally toward ±US$60, but only a sustained rise above this level would reverse the current negative trend,” she said.

Other analysts covering the yoga retailer are also warning investors about potential troubles ahead.

ISI Group downgraded the stock to neutral from strong buy earlier this week and Cowan & Co. lowered its rating to market perform from outperform on Jan. 13.

Short interest, meanwhile, has grown nearly 14% during the past two reporting periods, and now accounts for 15.8% of the stock’s float.

Still, the average analyst price target for Lululemon shares remains US$60.21, according to Bloomberg, representing a 26.6% gain from the current price.

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Lululemon has more room to fall: technical analysis | Financial Post

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