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Lululemon Athletica, Inc. (LULU) has appreciated from $2.16 in March of 2009 to $64.49 back on July 20th of this year (recall that the stock split too), representing a massive creation of wealth for loyal investors in the face of numerous critics about the firm’s valuation and staying power. You can see the impressive uptrend on the weekly chart below, illustrating that each leg higher was consolidated in a rather healthy manner, before proceeding to take the stairs up once again.

We know that as a bull run matures with each successive push higher in a powerful uptrend the risk of late-stage base failure increases. This is essentially the “Rubber Band Effect,” and can be seen recently with the ferocious decline in NFLX shares after a similar awesome uptrend.

At the same time, calling a top to a potent bull run is usually an exercise in futility, and has been the downfall of many a bear since the inception of short-selling in the markets. If equities as a whole commence a fresh leg lower, then it is likely LULU breaks down from the weekly pennant near completion. If 1120 on the S&P 500 continues to hold as firm support, then there are still few signs that Lululemon is actually topping. Note the lack of heavy selling volume over the past few months. Actually, the buy volume has been persistent and impressive. The stock is still rather heavily shorted, too, which is likely to exacerbate the breakout or breakdown, ala Netflix. Either way, the stock is leaning on its 20 period weekly moving average near the apex of its pennant and should be watched closely for a break ether way.

Finally, note that LULU is also an attractive takeover candidate given its strong growth and brand loyalty during tough economic times. I understand the arguments against Lululemon itself actually accepting a takeover bid, but tell that to the bear who is heavily short LULU on the day that Nike or some other firm makes a hostile bid, and LULU squeezes 25% higher.

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