From Feeling Groovy to Kind of Blue

Two stocks that have been leading this rally higher lululemon athletica (ticker: $LULU) the maker of the incredible butt sculpting Groove Pants and International Business Machines (ticker: $IBM), IBM or Big Blue, have looked like they needed a rest recently. Now it seems like they are standing on the wrong side of the railing on the Brooklyn Bridge getting ready for a plunge. There is still a chance that they can be ‘talked down’ but it does not look good.

lululemon athletica

LULU Daily

Today lululemon athletica fell out of a symmetrical triangle and closed below the 50 day Simple Moving Average (SMA) on heavy volume, as shown on the daily chart above. The Relative Strength Index (RSI) turned sharply lower and through the mid line and the Moving Average Convergence Divergence (MACD) indicator which had been improving took a turn for the worse. There is some support at the low of the previous channel at 87.50 and then the 23.6% retracement of the move higher at 85.90 and the 100 day SMA at 83.43. These levels look like interim stopping points. The weekly chart below Adds the 20 week SMA at 84.43 as potential support but with a RSI that is now falling and a MACD that is just crossing lower the previous support of 75 and 68 or the 50 week SMA at 62.27 looks more likely. This has a high short interest at over 10% so to play this on the short side with out the risk of a squeeze look at buying the July 87.5/75 put spread that went out at 3.35 Thursday. You can consider reducing the cost be also selling a June 105 call for 70 cents making a net debit of 2.65 for potential upside of 12.50.

LULU Weekly

International Business Machines

IBM Daily

IBM is in a bit of a stronger position but still with weak technicals. The daily chart above shows it pulled back to the support of the break out level at 166.50 and 50 day SMA and then bounced on Thursday. But the RSI continues to head lower and the MACD continues to grow more negative. If it falls through support then the next level down is the 100 day SMA at 161.79, corresponding with previous support and then 158 and 152. The weekly chart also exhibits a RSI that is heading lower and a MACD that has just crossed negative. But it also shows that it is on the support level of the March high. In addition to the support on the daily chart there is also a near 155 and then 143 on the weekly chart. With over a billion shares outstanding there is no issue with a possible short squeeze on this name. Wait for a break and close below support before you try to short this name as a pullback to support before a move higher is often part of a healthy run higher.

IBM Weekly

As a disclosure I am long IBM via October 175 calls and currently have no position in LULU. Theme music below.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

Feeling Groovy

Kind of Blue – So What

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