Stocks Slump, Lulu Dumps

Core PCE a Bit Higher - No Biggie

Hey everyone and welcome to another edition of Magnelibra Trading and Research. We first wanted to touch upon our post yesterday where we covered the potential move prior to the Lululemon earnings report. For those that didn’t happen to read our post yesterday we put out this LULU chart prior to the earnings and we highlighted the breakeven options volatility potential and potential for further downside:

We mentioned the risks tilted to the downside and highlighted a put spread for a 2.3x payoff. Per yesterday’s post,

We will use the $340 strike price, where the call is priced at $14.97 and the put is priced at $14.38 which gives us a breakeven move of $29.35 or 8.6%. I don’t see much on either side indicating a potential move, but considering the economy and the outlook, plus new competition we would suspect the downside may offer some opportunity. Tomorrows expiration $335/$325 put spread is $4.35 for a 2.3x payoff. Anyway overall this one doesn’t seem to offer any great potential as the risks seemed to be balanced here but the chart structure seems to look technically weak.

Well Lululemon earnings came out, per Zachs:

lululemon’s fiscal fourth-quarter earnings per share (EPS) of $6.14 increased 16.1% compared with adjusted EPS of $5.29 in the prior-year quarter. The bottom line also surpassed the Zacks Consensus Estimate of $5.85.

However, despite the earnings beat, the stock is tanking on concerns of tariffs! Here is the current premarket look at Lululemon per MarketWatch, shows LULU -$38.28 or -11.21%:

Longer term LULU targets sit at about $267/270 so don’t be shocked at a continued decline toward this area as both economics and competition as well as tariffs will continue to erode the upside for LULU.

We also had the PCE numbers this morning and we see that Core PCE rose 0.4% MoM, and 2.8% YoY. This is a tenth higher than expected but we don’t think this is that big of a deal. Many will still claim that inflation has potential to rise and continue to rise, but with what we know of the overall annualized FOMC inflation rate over the last 3 decades, well 2.8% core PCE is well within the tolerances.

We also know that the global central banks are leaning toward cutting rates and not raising them and this has the tendency to drag down the equilibrium level of all interest rates. Here is a pic from Zerohedge:

Alright, that leaves us with the technical picture of weakness in the overall equity markets:

The SP500 futures have sellers back in control as the rejection from the 50% Fib and now below our pivot at 5750:

We suspect sellers will remain in control of the Nasdaq futures as well below 20215:

We are also watching Silver today as the $35 area has been breached and shorts are begging not to be taken out to the woodshed with a swift $2 move higher, this weeks close is important psychologically, so lets see if we can get a close > $35:

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