Is Lululemon a good speculative bet?

Photo 2013-03-22 1_28 PMLululemon (LLL.TO) shares recently fell from $72 to $64 (an 11% fall) due to a sheerness issue with it’s signature yoga pants.

It’s difficult to believe that this will be a long-term problem for Lululemon or that an 11% haircut is justified.  However, for a beloved brand like Lululemon a single quality issue can shake consumer confidence and send the brand (and the stock) into an irrecoverable tailspin.

The company seems to be handling the issue well though – recalling the too-sheer pants and moving on.

I think that Lululemon might be good for a 10% recovery in the next couple of months.  Sadly I have no spare cash to trade it!

Is Apple bottoming?

Yesterday I wrote that Apple (AAPL) might be bottoming and setting up to complete the right shoulder of a head and shoulders top.  If true, then the stock should be bottoming at the neckline, which should be around $530 (the May low).

How do we know that the stock has bottomed: can we infer this from a string of down days and then a single up day? Well, let’s look at the May 2012 bottom (see chart below).

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In May the stock saw a string of five down days that saw the stock fall from ~$560 to ~$530 (~5%).  This was followed by a single-day reversal that recovered the previous 5 days’ losses (i.e., the stock went from $530 back to $560).  The stock then held above this support line at $560 for a further four days before moving higher.

Fast forward to this week.  We have seen three days of declines from ~$590 to ~$540 (~8%), which is a more violent decline than we saw in May.  Today we are seeing gains of ~3% (it is 1pm EST right now) but the stock is only at $553; a long way from recovering recent losses.  If the May pattern is repeated the stock will close down (below yesterday’s close of $537), but near the bottom (a buy signal for Monday).  If the stock closes up then we should wait to see if support forms over the next couple of days before buying.

UPDATE

Writing today, 13th November, the stock does appear to be bottoming.  Since it’s 4% fall from $560.63 to $537.75 on 8th November the stock has been stabilizing (see chart below).

The daily lows for the last four days were:

  • 8th November $535.29
  • 9th November $533.72
  • 12th November $538.65
  • 13th November $536.36

The support that we were looking for seems to be forming at $533-$538.

UPDATE

Writing today, 1st April 2013, Apple has continued to fall reaching $428 today.  Clearly my prediction did not come true this time.

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Time to top up on Apple? Maybe not.

Apple (AAPL) has run up to over $700 in mid-September (on iPhone 5 release hype) and then fallen to under $600 today.  The stock is now toying with its 200d moving average of $590 (see below).  The 200d moving average is often a support level: if the price falls below $590 then it might keep falling for a while.  This could offer an excellent buying opportunity well below $590.

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Looking at the longer term chart (below) I see the left shoulder (early April) and head (mid-September) of a head and shoulders top pattern.  If the right shoulder forms then it will complete a bearish technical pattern.  More specifically, if we see a rally that peaks in about 3 months (late February or early March 2013) then the pattern is complete and we should expect a price collapse.  I’ll check back in on this prediction in February.  In the short term, a rally in the next 3 months would provide good returns and a possible buying opportunity.

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I took profits at $650 back in August.  The stock then ran up to over $700 and fell back down to its current $596.  My strategy of trading around core positions suggests that I should top up again at around $585, which is only 2% below the current price.  Normally I would place a limit order at $585 and wait for the stock to fall but, given that my target price is very close the 200d moving average, I will wait to see if the price falls through resistance to below $585.  Maybe I can get a bargain at around $575 if I’m nimble.

UPDATE

Writing today, 1st April 2013, this prediction did not come true.  Apple continues to fall reaching $428 today.  There was no head and shoulders.

Is it time to buy Telus?

I own Telus (T.TO).  The stock has bounced around recently, which is great for me as I trade around core positions.  The stock seems to be bottoming here after a 9% dip, and is at the bottom of its normal range at $61.20 (see chart).

The problem is that I only trade around on moves of 10%.  Do I break discipline to pick up a stock when the price seems low, or do I stick to my process?

As tempting as it is, I’ll stick to my process.  However, Telus looks good here!

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UPDATE

Writing today, 31st October, this looks like a great prediction.  Telus closed today at $64.84, up almost 6%.

Is Apple Baked?

On 14th March I wrote that Apple’s (AAPL) stock seemed to be moving too fast. Well, four weeks later I think that the stock might now be running out of steam. The stock left its normal growth channel in early February and has moved hyperbolically towards a climactic top (a sharp increase in prices on heavier than normal volume). It has made three distinct pushes since then, indicated by green ovals in the chart below, each one shorter and weaker than the last – like a stone skipping on a pond and about to sink! I suspect it might make one more skip, perhaps up to US$650, and then sink back to its normal growth channel at around US$500.

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A drop from US$650 to US$500 will erase only two months of gains, but the psychological impact of Apple shares falling by 20% or 25% will be significant for retail investors’ confidence and could signal another cruel summer, like 2011.

I am moving my stop loss up to US$600 to protect against a quick move downward. I like the underlying company and hope to buy in again at a lower price after the climax is over.

UPDATE

Writing today, 11th May, this prediction was a good one.  Apple had actually peaked at the time of writing ($644 intraday), and fell to a low of $560 by 24th April (a 13% tumble).  I was stopped out at $600 on 16th April.

Return to Volatility?

Markets have been strangely calm in the past few weeks. Why is that a problem? Well, the markets were very uncalm in August through November 2011, and the underlying conditions have not changed since then. Europe is still a mess (actually, ever more so as Greece teeters on the brink of default and several European countries are downgraded by S&P), the US debt problems are unsolved, and earnings are unexciting.

The fear index – volatility (^VIX) – is lowering but I do not think that this is sustainable.

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I predict that the VIX will rise materially within the next month. To trade this prediction, I could buy an ETF that mimics the VIX, such as VXX (VXX), which is currently $31.49.

UPDATE

One month later, on 17th February, the VXX closed at $26.60. This was a bad prediction. Conclusion: I’m not ready to try trading the VIX!

It’s Deja Vu All Over Again

Looking at the long-term chart for the S&P500 (^GSPC) I have noticed that 2011 looks a lot like 2010: a high in the spring followed by lows throughout the summer.

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That’s not very scientific so let’s do a little measuring.

  • In 2010 the S&P500 hit a 52 week high in April (1,217), fell 15.9% over the summer (to 1,023), recovered by 4th November and then advanced a further 3.5% above the April high (or 23.2% above the summer low) by December (to 1,260).
  • In 2011 the S&P500 hit a 52 week high in April (1364), fell 18.0% over the summer (to 1119), and then…

Well, we don’t know what happens next but if the pattern continues, we should see the S&P at between 1379 and 1412 by year-end. So, based solely upon this chart, there seems to be no more to worry about this year than last year. So how do we trade this? If there is going to be a recovery, what will be the trigger to buy?

  • The price crossing the 50 day moving average upward? No. This happened in July 2010 but the gains were fleeting and were lost the following month.
  • The price crossing the 200 day moving average upward? No. This happened in August 2010 but those gains were lost later that month.
  • How about the 50d moving average crossing the 200d upward. This did not happen until October 2010, after the recovery was well underway, but it was a solid place to enter the market. Anyone entering the S&P at this point would have seen 15% gains by the April 2011 high.

Using this information I predict that the S&P500 will recover to it’s April 2011 high later this year. I also predict that the 50d moving average will cross the 200d upward at some point before that, which will represent a good time to invest in the index.

UPDATE

Writing today, December 30th 2011, this prediction has not come true. There has been no recovery by year-end. The prediction may well bear out in 2012, but the market is still in the doldrums today. The 50d moving average has moved up towards the 200d average, but not yet crossed, so that may still be a good buy trigger.

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UPDATE

Writing today, 15th March 2012, this prediction did eventually come true. The 50d moving average crossed the 200d at the end of January and has increased sharply since then to it’s current level of 1400. My S&P Fund is up 5.4% since the end of January.

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