Are there yellow flags cropping up in the athleisure trade?
Lululemon shares closed more than 7% lower on Wednesday in response to the apparel retailer's second-quarter earnings report, which seemed to have left investors wanting more despite top- and bottom-line beats and a 157% year-over-year spike in online sales.
That stock and fellow sportswear makers Nike, Under Armour, Adidas, Columbia Sportswear and VF Corp. are up 30% to 90% from their March lows. Lululemon and Nike hit all-time highs on Sept. 2.
The recent momentum is likely one of the things driving Lululemon's stock lower post-earnings, according to Danielle Shay, director of options at Simpler Trading.
"When you have a company like this where there's so much hype around it and you get an earnings report, the earnings report has to absolutely blow it out of the water for the share prices to continue to rise," Shay said Wednesday on CNBC's "Trading Nation."
"I just view this as a little bit of disappointment," she added. "In fact, I think it's a great buying opportunity because Lululemon does have a really strong cult following, great customer loyalty, and I think that their online ordering is going to continue to thrive."
Ari Wald, Oppenheimer's head of technical analysis, saw the overall market's weakness as a chance to buy into some of his firm's top ideas, including Lululemon and Nike. Both are rated outperform at Oppenheimer on a fundamental basis.
"Of these two, it's worthwhile to mention Nike's breakout versus the S&P 500," Wald said in the same "Trading Nation" interview.
"I think that's really the key signal in the charts," he said. "That ratio, it's measuring whether a stock, and Nike in particular, is either outperforming or underperforming versus its benchmark, and we can see a clear and definitive breakout above its year 2015 peak. This is a big, multiyear breakout. We think this confirms a resumption of Nike's long-term trend of leadership. We like Nike. Buy it."
Shay suggested a more roundabout way of playing Nike ahead of its Sept. 22 earnings report.
"I love Nike. I do own the stock and I think there's a great options trade in it as well," she said. "I think that this company is probably going to experience a run into earnings. … Typically, the way that I trade this in the options market is by buying in-the-money calls in the earnings series."
By doing so, Shay bets on a rise in Nike's implied volatility — the amount by which options traders expect the stock to swing in either direction after earnings — and its share price.
"Then I just go ahead and get out of the options prior to the report, but I continue holding the stock," she said. "I think it's a great pick and I really like it here."
Nike finished trading up nearly 2% on Wednesday.
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