Can you name a company that is committed to making women’s derrières look great and whose stock currently has more than 20% of its share float sold short? Yes that’s right, Lululemon (LULU). Short sellers have been feasting on LULU in recent weeks after the company came out with a disappointing earnings report a couple of weeks ago which sent shares tumbling more than 20%.
However, there are signs that a bottom may have formed and the tide may be turning:
On the back of an upgrade to ‘overweight’ from Morgan Stanley, LULU shares are rallying this morning as they threaten to break-out above minor resistance near $55.50. The volume-by-price ‘air pocket’ above the $55.50 level offers a good possibility of a quick trip to the $59-$60 area. Moreover, the large short interest (20.5%) is likely to only exacerbate any upside moves as short sellers look to lock in profits.
Morgan Stanley raised its price target on Lululemon to $68 from its previous $56 price target as the firm sees solid earnings growth in the double digits in 2016 which should lift LULU shares which have underperformed during 2015.
Key reference points for technical traders: Support near $53 and the September 15th low at $51.96 – resistance near $55.50 and $59 with the open gap from the earnings disappointment up at $64.05.