PreMarket Prep Stock Of The Day: Lululemon

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

Sometimes an EPS and sales beat coupled with raised guidance doesn't instigate a rally. This happens to be the case with Lululemon Athletica LULU.

Underperformer In 2021: While the S&P 500 index has sprinted to a new all-time high on several occasions this year, Lululemon has gone in the opposite direction. After ending 2020 at $348.03, a four-day rally to start the year took the issue to its yearly high ($374.2) and high for close for the year ($367.29) on Jan. 7.

The issue hovered in the $360 handle, then a losing streak in 11 of the next 12 sessions knocked it to $329.51. It attempted to rebound on several occasions but never could sustain a rally.

The ultimate low of the decline was far beyond the yearly close when it bottomed on March 5 at $269.28. That low came in just below its June 2020 low ($284.29) and well above its May 2020 low ($213.97).

Big Rally Into The Print: As so common with stocks in long-term uptrends, they will rally into an upcoming earnings release. This certainly was the case with LULU as it sprinted to $321.30 over the next 12 sessions, which has turned out to be high for the rebound.

The issue attempted to reach that high on two other occasions: the following day of the high being made, March 24 ($319.79) and Tuesday ($320.58).

Adding further significance to this area is the issue made a high on March 2 ($321.25), three days before it collapsed to the low for the move. It should be noted that the high for the rebound was made on Tuesday at $317.09.

Good, But Not Good Enough: After the close on Tuesday, the company reported quarterly earnings of $2.58 per share, which beat the analyst consensus estimate of $2.49. The company reported quarterly sales of $1.73 billion, which beat the analyst consensus estimate of $1.66 billion. Also, the company raised first-quarter and 2021 guidance.

Price Action: Despite the solid report and guidance, there was something the Street didn't take a liking to.

It was evident from the after-hours price action that the issue was going to be under selling pressure. The author of this article identified the major resistance at $320 area as an area that must be breached or lower prices were to follow.

On the downside, potential support was identified at the midpoint of the recent low ($269.28 and $321.30), which comes in at $295.29. Also, $300 may provide some support as well since its splits the two lows in the issue from March 25 ($298.54) and March 26 ($302.48).

After a lower open, LULU attempted to rally but found sellers just beyond Tuesday’s low ($311.44) reaching $311.68 and reversed course. As of 12:30 p.m., the ensuing decline has taken the issue to $300.05 and is attempting to rebound.

The full discussion on the issue from Wedneday's show can be found here: