I don’t recommend earnings plays often. Usually, they are not much more than a gamble. However, certain trades setup so nicely that I have to try to get involved. Right off the back of great calls last week in ADM and ZIM the week before that, which you can read about HERE, came my Bullseye call in LULU. 

Here’s How the Stock Traded After The Pick Was Sent Out:

It’s very rare that I want to hold a stock through earnings, but in this case, the setup was so good I was ready to roll the dice! 

Fundamentals

Lululemon Athletica inc., together with its subsidiaries, designs, distributes, and retails athletic apparel and accessories for women and men. It operates in two segments, Company-Operated Stores and Direct to consumers. The company offers pants, shorts, tops, and jackets for a healthy lifestyle and athletic activities, such as yoga, running, and training, as well as other sweaty pursuits. 

Technicals

LULU daily chart

After a big selloff from the December highs, I was optimistic LULU would have a good earnings quarter. The Keltner’s flattened out started to curl up, and LULU consolidated above the middle Keltner. I believed LULU could go $350+ post-earnings, and even that turned out to be conservative!

In this environment, it is important to use hourly charts! It helps me ride out the volatility and avoid getting caught up in the day-to-day chop. 

LULU hourly chart

LULU was trending nicely since the turning point bottom in the middle of March. LULU was already beaten up pretty bad coming into earnings, and thus I thought any bad news was already priced in. I felt it was unlikely they would miss earnings and get crushed. 

I loved the slow grinding action in LULU on the upper end of the channel! 

Earnings plays are risky, and I was willing to lose my entire bet on the trade, but I understood the rewards could be significant and was willing to take the risk! 

Here is How The Trade Idea Played Out:

Unfortunately, I missed my entry Monday morning on a fat finger mistake. However, the Idea and reasoning behind the trade were on point, and the trade worked out even better than I had hoped. 

Here was the trade idea sent out to subscribers on Monday morning before the open:

LULU

There was a breakout of an Ascending Triangle on Friday with the bulls pushing the stock higher against the 13/30 hourly momentum averages.

I want to see continued momentum here as the buyers look to push towards the pivot highs near $330, and maybe even beyond.

And with Q4 corporate earnings on Tuesday after the market close, I’ll want to keep a very close eye on how it trades as shipping costs and inflation start to take their toll on retailers. 

For my trade, I’ll be looking for options that are 2 weeks out and only looking to buy when the price dips below Friday’s lows.

I don’t want to chase the higher price action at this time, so I’m going to sit on my hands and watch what unfolds here.

If I get into this trade, I’ll be looking for targets on the way up to $330 pivot.  

Halfway from $320 and $330 is $325, and this feels like a natural place to take some money off of the table on the way higher.

As for my stop, I don’t want to give it too much room and stick to a “risk 1 – make 2“ setup.

My Trade Plan:

• Buy LULU 14 Apr 22 $320 calls 

• Target : $325

• Target : $330
• Stop : $315

Another successful Bullseye trade Idea in the books!