A bullish options trade on this apparel giant that's showing signs of a recovery

Apparel Leader’s Options Activity Signals Recovery, Offering Fresh Opportunity for Investors

Imagine your favorite sports team just lost big, but now they’re showing signs of a comeback. That’s kind of what’s happening with Lululemon’s stock. After a rough drop, it’s starting to look like it could bounce back—and investors are paying close attention.

Why Lululemon’s Moves Matter for Investors

Lululemon (LULU) is a major player in athletic wear. When its stock swings, it can ripple through your portfolio, especially if you’re invested in retail, fashion, or consumer stocks. Big moves in well-known companies can also signal changes in the whole market’s mood.

What Happened to Lululemon?

On September 4, Lululemon announced better-than-expected profits. But it also warned that its total sales for the year wouldn’t be as high as hoped. This mix of good and bad news made the stock drop almost 22% in just one day—a big fall, even for Wall Street.

Since then, Lululemon has been slowly recovering. Some investors are wondering if now is the time to get back in, hoping for a rebound.

Bull Case: Signs Lululemon Could Bounce Back

  • Technical Signals Look Promising: Three tools—RSI, DMI, and MACD—are showing early signs the stock may be turning around. These tools help investors spot when a stock is “oversold” and might be ready to rise again.
  • RSI (Relative Strength Index): This tool showed that Lululemon was oversold but has now bounced back above 30, which often means selling may be slowing down.
  • DMI (Directional Movement Index): The green line (DI+) is rising while the red line (DI–) is falling. This usually means buyers are starting to win over sellers.
  • MACD (Moving Average Convergence Divergence): A quick version of this tool shows the blue line crossing above the yellow line—a classic sign that momentum might be shifting upward.
  • Potential for Quick Gains: Some traders are using a “bull call spread” options trade, which can double your money if the stock rises enough by a set date.
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Historically, stocks that fall sharply after cutting forecasts sometimes recover within a few months. According to a Nasdaq study, about half of S&P 500 companies that drop 20% or more after weak guidance recover half those losses within 90 days.

Bear Case: Reasons to Stay Cautious

  • Revenue Worries Remain: Lululemon lowered its sales forecast, and that’s a big red flag. If fewer people are buying, profits could stay weak for a while.
  • Retail Sector Struggles: Other clothing companies have also warned about weaker sales. If shoppers keep cutting back, all retail stocks could have a tough time.
  • Quick Rebounds Aren’t Guaranteed: Sometimes, stocks that fall hard take a long time to recover—or keep falling. In 2022, several retail stocks kept sliding months after warning about lower sales (source).
  • Options Trades Carry Risk: Bull call spreads limit losses but can still lose 100% of what you invest if the stock doesn’t rise enough by the deadline.

Investor Takeaway

  • Watch technical signals like RSI and MACD for signs of a real rebound, but don’t rely on them alone.
  • Consider the bull call spread only if you’re comfortable with the risk of losing your entire upfront cost.
  • Balance your portfolio with investments outside of retail, in case the sector stays weak.
  • Look for signs of stronger sales before going big on Lululemon—wait for a few positive reports, not just one bounce.
  • Stay informed by reading earnings reports and checking how similar companies are performing.

Lululemon’s recent drop is a reminder that even strong brands can stumble. But with careful research and a clear plan, investors can turn these shakeups into opportunities—or avoid getting caught off guard.

For the full original report, see CNBC

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