LULU| Lululemon Athletica Trading Journal with VantagePoint

VantagePoint Trading Software is a forecasting tool that uses both end of day data and artificial intelligence to provide traders a forecast of market movement. These forecasts are 1-3 days in advance and help traders improve their timing on making trades and maximizing profit potential. The artificial intelligence software forecasts market movement for stocks, futures, Forex and ETFs. LULU is in focus today….

This journal entry looks at the recent market movements of Lululemon Athletica NASDAQ: LULU

VantagePoint Trading Journal LULU

The market is now gearing up for earnings season. For those who enjoy market volatility, this is your time to shine! Some traders shy away from this uncertainty. However, there is no right or wrong answer as to whether to trade during earnings season. That is up to that individual’s risk tolerance profile. But, with greater risk, must come greater reward. Using the artificial intelligence forecasting software VantagePoint, we can analyze individual stocks, futures or ETFs and broad indexes like the S&P, Dow, and the Russell. After utilizing our VantagePoint platform I continue to believe in the short-term, we are in a sideways to bullish market. Today let’s consider Lululemon (LULU) for a potential set up and subsequent break out to the upside. Here’s the chart:

image of LULU trading diary with VantagePoint
With four consecutive bullish days for LULU, could the market be poised for a breakout following a crossover on October 20th?

Using the predictive indicators of VantagePoint, we will note two significant things. We have a bullish crossover indicated by the blue predictive moving average line crossing above the black simple 10-day moving average on 10/20/17. We also see the VantagePoint propriety neural index indicator moving from the zero (0) to the one (1) position. This indicator measures strength and weakness for a 48-hour period. The move to the one (1) position indicates strength and further makes the case for a potentially bullish scenario.

In addition to the added uncertainty surrounding earnings season, we will notice that LULU will have to make new recent highs and fill a gap from earlier on in the year to continue this bullish trend.

If one were a straight stock trader, buying LULU in the $63.00 area could prove prudent in anticipation of a predicted bullish move to the upside. This would be an easy way to enter LULU without the limitation of time associated with other trading strategies. In this scenario, a sell-stop order in the $61.00 area to mitigate potential losses would also be worth looking into.

If you trade options, LULU could prove to be advantageous as well.  Remember, the additional volatility associated with earnings season in addition to the technical resistance will make it necessary to increase our reward to risk ratio associated with any options play we identify.

From three simple inputs, we can compute the magnitude of the projected move through expiration.  Those three inputs are the underlying price, at-the-money implied volatility and the date of expiration.  Performing this calculation yields a project move of approximately $4.00 or 6.5%. This targets the $67.50 price level. Let us consider then a possible bullish set up using the LULU November 65/67.5 call vertical paying 0.60. This will have a maximum risk of what one would pay for the spread, $0.60. The maximum reward will then be the width of the spread less any premium paid or $1.90 yielding a reward to risk ratio of 3.14:1.  Given the trading environment outlined above, a trader must evaluate whether this reward/risk ratio is appropriate for his/her risk tolerance.

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