Is Lululemon Athletica eyeing a Santa Claus rally to the April highs?

With a monthly gain of 14.64%, Lululemon Athletica Inc. (NASDAQ:LULU) could be looking to end the year strong. The stock has lost by a similar margin in the last one year, with the recoveries giving hope of a potential Santa Claus rally. The quarter results will tell if LULU maintains the uptrend for a potential return to $386 or finish at $410. 

Trading at $371 after a slight correction, investors await with enthusiasm Lululemon’s quarter results on December 08. Wall Street has earmarked earnings per share of $1.95 in the quarter, a year-over-year increase of 20.4%. The company is expected to record revenues of $1.8 billion or £1.47 billion, an increase of 24.4%. Will Lululemon surprise with positive retail news?

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Lululemon has notoriously exceeded earnings estimates in its previous four quarters. For the last quarter, the company posted a surprise 18.28% increase in earnings to $2.20. The EPS exceeded estimates of $1.86 per share. A repeat of this earnings trend could attract buyers to the apparel stock. Investors will also be looking for post-earnings guidance as key triggers for the next price level of LULU. 

LULU slides ahead of earnings after a bullish month

LULU Chart by TradingView

On the technical outlook, LULU has slid after hitting resistance at $386. The RSI comes from the overbought level, meaning buyers are taking profits after a bullish month.

The level to watch as the earnings linger is $366. If earnings come strong and guidance excites, this could be an important reversal zone. The level also coincides with the 20-day moving average and ascending trendline.

What you should do ahead of earnings

We recommend buying LULU after the earnings report. Keep an eye on the entry of buyers at $366 if the results are exciting. $386 would remain the immediate target. However, LULU can ride to $410 on the current momentum.

Conversely, if the earnings disappoint, LULU could slide to find support at $340.