Trading Exercise vs Fast Food
- Posted by Greg Harmon
- on May 6th, 2013
One pair that I follow is a bit of a reflection on the health of the economy. Of course I am talking about the ratio of lululemon athletica, $LULU, to McDonalds, $MCD. One, the height of fitness and the other well, you know. But the ratio chart of the pair shows it is at a tradeable juncture. Take a look.
Exercise was firmly in control through last fall, but then a topping consolidation occurred and was followed by Fast Food taking control. The recent rebound takes the ratio back to 0.75, where it has found resistance twice earlier this year, and is consolidating in a bull flag. The spike over that consolidation April 23rd touched the 61.8% Fibonacci retracement of the down move at 0.775 and the center of the consolidation at 0.74 is nearly exactly the 50% retracement at 0.745. The smaller move higher to this consolidation from the 0.68 area targets a Measured Move higher to the 0.80 ratio and the bigger move then takes it to 0.87. Failure here and a drop targets a move back to 0.68 and support at 0.62 below. Play the break over 0.76 or under 0.72 to gain more certainty. I hope that exercise wins for all of our sakes!
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Gregory W. Harmon CMT, CFA, has traded since 1986 and held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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