Beaten down Lululemon stock could make a comeback: Trader

This is one stock that just hasn't been working out.

Shares of the high-end athletic retailer Lululemon have been a sheer disappointment to investors lately, down nearly 20 percent in the last three months, while competitor Nike is up 14 percent in that period. But according to one trader, a turnaround could soon be afoot.

"I think the bottom is in for Lululemon," Andrew Keene said Thursday on CNBC's "Trading Nation." For Keene, a combination of bullish options activity and a constructive technical setup could propel the stock as much as much as 15 percent by the end of the year.

"The stock has been massively underperforming the broader market but it looks like it's consolidating at this $49 level," he said. In addition to that consolidation, Keene noted that a double bottom is forming on the chart. Technicians often look at double bottoms as foreshadowing a rebound. "I think we could retest resistance at $57.50." The stock is currently trading below $49.

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In addition to the chart pattern, Keene noted a flurry of bullish options activity in the names. "We've been seeing big buyers of the December 52.50-strike calls," the AlphaShark founder said.

The institutional buying prompted Keene to buy some calls of his own. Specifically he purchased the December 55/57.5 call spread for 60 cents. This is a bullish strategy where a trader will buy a call and then sell a higher strike call to offset the cost. The goal is for the stock to rise to the call you are short. In this trade, Keene sees profits if Lululemon rises above $55.60 by December expiration.

Wall Street tends to agree on a turnaround for Lululemon. Of the 38 analysts that cover the stock, the average price target is $65.52 with an overweight rating.

Lululemon shares were down 6½ percent on Friday.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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