Trading Nation

After Lululemon’s big rally, technician says ‘don’t fear strength, stay long’

Trading Nation: Bet on Lululemon into earnings?

A solid earnings beat and double-digit sales growth in its fiscal first quarter put Lululemon on track Friday for its best day in 18 months. One technician says this is just the beginning.

"It has been a favorite of ours the last 12 months, and longer term, we still think this rally has plenty more to go," Chris Verrone, head of technical analysis at Strategas Research Partners, told CNBC in an email Friday. "Don't fear strength, stay long."

It's finally breaking out big after years in a tight range, Verrone said Thursday on CNBC's "Trading Nation" before the athleisure retailer's earnings release that day.

"Keep in mind it tried for basically a decade to get through this $80, $85 level. Support underneath it was near $40, $45," said Verrone.

Lululemon shares broke out above $90 a share for the first time ever in early April. Since then, the stock has risen another 36 percent to trade at around $122.

There's also an opportunity to buy any weakness if Lululemon pulls back from this post-earnings rush, said Verrone.

"There's very good support near $99, $100 so any pullback we want to be a buyer," he said. "We don't think this longer-term rally is done just yet."

Lululemon shares were up 17 percent Friday following its earnings release after the bell Thursday. This marks the fifth straight earnings report that has sparked a big rally in Lululemon shares at the next day's market open. After the last earnings report in late March, Lululemon burst 7 percent higher at the open.

Big gains for Lululemon this year put it in overvalued territory even as its business fundamentals remain sound, according to Gina Sanchez, CEO of Chantico Global.

"From a valuation perspective it is at risk," Sanchez said on Thursday's "Trading Nation." "With the markets showing the kind of volatility that they're showing and the retail sector generally bracing itself for what could be a retail apocalypse, you do have to consider how long that valuation is going to hold out."

Its stock trades at 36 times forward earnings, its highest multiple since mid-2013. The trades at a 16 times multiple.

Lululemon shares are up 56 percent so far this year and nearly 152 percent over the past 12 months.