Canadian sportswear maker Lululemon (LULU) is up more than 10% today buoyed the addition into the S&P 500 index. The stock pop is taking Lululemon to a two-year high. Lululemon will be replacing Activision Blizzard in the S&P 500 index effective before the market opens on October 18th 2023. Microsoft just completed a $69 billion deal to acquire the videogame publisher.
When a Company is included in the S&P 500, this usually causes the stock to jump because demand for shares are increased. Think about mutual fund managers and institutional investors who are tracking the index having to add the stock to their portfolios.
Lululemon has had a strong year with the stock being up nearly 30% year to date (29.91%). Q2 earnings came in better than expectations with a net revenue increase of 18% year over year.
Analyst’s such as Oppenheimer & Co senior analyst Brian Nagel sees this as a sign of a discerning consumer:
“LULU performed well through the pandemic, right? But I think what’s happening here post-pandemic is, as a society, we are still dressing a lot more casually, you know. So this ongoing strength in Lululemon — the double-digit sales growth — to a certain extent is coming at the expense of more traditional clothing companies,”
At the end of August, Lululemon lifted its Q3 annual profit and revenue forecast for a second time stating its third quarter was “off to a solid start” as the North American business improves. To attract more customers, Lululemon has launched products including “road-to-trail” running shoes and introduced new colors in its sports apparel, while making additions to its tennis and golf collections.
Last month, Lululemon said it entered into a five year partnership with connected-fitness platform Peloton (PTON) for its content. Lululemon will become the primary athletic apparel provider for Peloton, while some Peloton instructors will be Lululemon Ambassadors. In return, Peloton would become the exclusive digital fitness content provider for the apparel maker, developing all content for Lululemon Studio beginning in early 2024.
Lululemon also stated that it has planned to stop selling its connected fitness Mirror device which it purchased for $500 million in June 2020 when valuations for at-home fitness equipment like Pelotons and Tonals were skyrocketing.
The stock looks extremely bullish with a breakout of the major $400 resistance zone backed by fundamental news that it is joining the S&P 500. Remember, this means an increased demand for shares or more buying.
As long as the price remains above $400, the breakout remains valid. Any close below $400 would lead to a false breakout. Remember: breakouts can see the price pullback down to retest the $400 zone before continuing higher. This ‘breakout and retest’ is a typical breakout pattern.
The next resistance levels come in at $452, where I would expect some profit taking. Then, previous record highs at $485.83.
Since the stock is being included in the S&P 500, it would be worth looking at the technicals of this index. The stock is battling at a resistance zone with the beginning of this week seeing an attempt to regain 4400. The sellers have come in around this on the last two days of last week. Bulls should watch for a strong close above 4400 to take out many of the shorts who are nestling their stop loss above the highs of Thursday’s candle.
Geopolitical events and price action in the bond markets continue to be the major movers of the stock markets.