Good Morning Lou,

I am watching Lululemon Athletica .It is trading above the  50 and 200 MA, vol is steady, can this stock  go to $70.00?

Thanks
Smita

Hi Smita,

Thanks for the assignment. I love the Lululemon Athletica(LLL TSX) story in that I remember their founder Chip Wilson from his days in Calgary. Back in the early 1980′s Chip started a retail operation called West Beach with a location on the Stephen Avenue Mall. Chip always had a positive attitude and is one of those people who brings out the best in the people he interacts with. Lets consult the charts to see if LLL has the stuff needed to get the price up to $70.00.

The three year chart illustrates the steady advance from the March 2009 lows. LLL has made a move above $50.00 which has provided resistance over the trading history of the stock. Your target of $70.00 is in what I like to call unexplored territory. We have no experience at those levels. No signs of resistance, no signs of support, your basic information void.

The six month chart depicts the move above $50.00 sparked by the release of the company’s Q2 results which was outstanding. LLL moved up from $34.00 on September 10 to $51.39 in about 10 weeks for a 48.2% return. Sweet!

Lululemon is on a  path driven by a product line that resonates with its target market. The price point for the yoga wear provides for healthy margins and same store sales continue to move higher.

LLL is a growth story operating in a high margin segment of the clothing retailing sector. As long as they continue to open stores and sell the lifestyle message that yoga is good for you and Lululemon has the best clothing for yoga you have a good chance of making your $70.00 target.

Now that LLL has moved above $50.00 that level now provides support for the next advance. The company is expected to report its Q3 results on November 30, 2010 so circle that date as a flex point that will confirm the advance .. or not.

Happy Capitalism!

Hi Lou,

Could you give me your thoughts on Sears Canada. The company has recently issued 2 special dividends at $3.50 each time and the shares have dropped by $7.00.The company still has another $300M in cash and will the company declare another special dividend? Is the parent company Sears Holding doing this to bring the share price down and then take out the remaining 10% shares.

Thanks,

Lou

Hi Lou,

Thanks for the assignment. Sears Canada, Inc. ( SCC TSX) now has one future and that is to produce cash for its parent company. Sears Holdings Corp. (SHLD NASDAQ) is under the control of financier Eddie Lampert who consolidated Sears and Kmart with the intent of stripping the cash out of them  and using it to invest in other companies. It is the same strategy that Warren Buffett used by taking control of Berkshire Hathaway Inc.( BRK.A NYSE) and turning it into an investment management enterprise. The question is will Lampert do as well as Buffett.

The three year chart tells the tale of Lampert’s efforts since merging Sears and Kmart five years ago. All the expectations of how things would unfold as a vehicle for investment didn’t quite come to fruition as the Great Recession had everyone including Lampert playing a different game called hang on to the wheel she’s headed for the ditch!

There is a definite double top on the chart that appeared in the March – April period of 2010.  A double top is a reversal pattern that provided a warning that the advance from the November 2008 lows was at risk. The downtrend is now firmly in place and what has to be asked is what could possibly move this stock higher?

The six month chart again depicts the story of a stock in a steep decline with no indications that it has found support for a rebound. It’s clear that Lampert will squeeze this pip until it squeaks. If you  think that getting a return of capital through a special dividend is worth the loss of capital as the stock declines then fill you boots. For my money it doesn’t make sense to get into a game where the business model was based on assumptions that have not quite worked out regardless of a possible offer to the minority shareholders.

Happy Capitalism.

Hello Mr. Lou,

MACD signaled turn in November '07

On behalf of the members of my Muslim Investment Club in York Region we would like to congratulate you on the good advice you are giving in these most troubling of times. We feel that in this market Wal-Mart would be a relatively safe investment – would you agree?

Mohammed and friends

Hello All My Friends In the Muslim Investment Club,

Wal-Mart Stores, Inc., WMT NYSE has had a nice breakout in 2008 as consumers made their way to the discounter to get the most bangs out of their paychecks. Management has also put cost controls in place to further boost the bottom line.

The MACD signaled the turn in November of 2007, plus a golden cross in April of this year, confirmed the uptrend. But to your question it looks like the advance is peaking and may have gotten ahead of itself and is taking a breather. The last candlestick is a spinning top which indicates indecision by investors.

I think we need to watch and see the trading over the next two weeks. Just to see how we settle out of the bailouts and other financial problems to give a better indication of the short term trend. The holiday shopping season is forecast to be a dog which is a good thing for Wal-Mart because as consumers rethink their spending they will turn to the discount king for everyday low prices. All other retailers beware.

Happy Capitalism!