Yoga Pants and High Tops: Trading Nike and Lululemon

Will a rising Apple (NASDAQ: AAPL) lift all boats? While the impact of Apple’s blow-out earnings announcement on the severely oversold Nasdaq is already being anticipated by financial pundits, short-term traders and active investors might want to consider the broader impact of Apple’s outperformance on other popular growth stocks that have recently come in for significant profit-taking.

Nike (NYSE: NKE) and Lululemon Athletica (NASDAQ: LULU) both fit into this category. Nike has the longer pedigree, by far. But both companies have come to represent what a sizable number of active people – including athletes in pro sports – think about and wear when they think about and wear everything from Nike’s NFL Dunk high top shoes to Lululemon’s yoga pants and zip-up hoodies.

Shares of Nike Inc. have now closed lower for three out of the last four trading days, pulling back to test new, two-week lows at the end of Tuesday’s session. The selling has taken the stock just inside of technically oversold territory – not unlike similarly sharp pullbacks in Nike during the first half of April and the second half of March. Each previous instance led to significant short-term gains, with shares of NKE rallying for seven out of the next ten days after the stock’s March correction, and Nike closing higher for six days in a row following a single-day dip into oversold territory earlier in April.

Lululemon, which topped in April, now looks to be breaking down from a short-term consolidation that developed shortly after those new, 52-week highs were reached in April. Pulling back by nearly 5% on Tuesday, LULU has closed lower for four out of the last six days to finish technically oversold for the first time since late in March. Then, a five-day sell-off that took LULU into oversold territory for two consecutive sessions led to a rally during which the stock closed higher for four out of five days, gaining more than 5%.

Heading into trading Wednesday morning, Lululemon has the larger edge of the two, and is set to open with a positive, short-term edge of more than one and a quarter percent. Both LULU and NKE share neutral ratings of 6 out of 10.

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David Penn is Editor in Chief of