This Michael Burry Stock Spiked on a $1B Activist Stake. How Our Top Analyst Found the Trade Early.

When a stock is down sharply, sentiment is usually the last thing to recover. That’s exactly what made Lululemon (LULU) interesting when it came up during a recent Market on Close livestream — not because it was loved, but because it had been written off.

Since Barchart’s Senior Market Strategist John Rowland, CMT, highlighted the setup and structured a trade, LULU is up roughly 10%, driven in part by Elliott's activist stake — validating both the bullish thesis and the way the position was built.

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But the real value of this trade isn’t just the move itself; it’s why the trade worked, and how traders can apply the same thinking elsewhere.

Michael Burry Got the Market’s Attention on LULU

Michael Burry’s name always sparks debate. The Big Short investor is often early, always controversial, and frequently wrong — until he isn’t.

What tends to get overlooked is that many of his long ideas have aged well. Estee Lauder (EL) was one example. Lululemon is now another name drawing attention after a brutal decline.

Burry’s core argument focused on value and duration. His view was simple: buy it, forget it for three to five years, and prices should be higher.

That kind of conviction doesn’t guarantee success, but it does justify taking a fresh look, especially when the chart begins to agree.

The Lululemon Stock Chart Setup

LULU had already suffered a deep drawdown before this discussion ever happened. From a technical standpoint, most of the damage was already done.

What changed was structure.

On the chart, the stock began forming multiple lows in the same area — a classic sign that sellers were losing control. Over time, those lows evolved into a W-shaped base, often seen near important turning points.

At the same time, short-term trend signals improved. LULU’s 20-day and 50-day moving averages began turning higher, suggesting momentum was shifting even while the stock remained below its longer-term 200-day average.

That’s the gray zone where many traders hesitate, but it’s where opportunity often lives.

Trade vs. Investment: Why Structure Matters

One of the most important takeaways from this segment was the distinction between trading and investing.

Under normal circumstances, John avoids long-term investments below the 200-day moving average. But rigid rules can cause traders to miss early turns — especially when a stock is transitioning from panic to stabilization.

Instead of treating LULU as a full-scale investment, John approached it as a defined trade with optional upside.

That mindset shift made all the difference.

How the LULU Options Trade Was Built

Rather than buying Lululemon stock outright and committing significant capital, John paired the position with a covered call.

He bought shares of LULU and sold a $220-strike call, collecting roughly $5.00 in premium at the time. That premium served two purposes simultaneously:

It generated immediate income ($500)
It created a built-in buffer against downside

If the stock continued higher and got called away, the trade would still deliver a strong return. If it stalled or pulled back, the premium helped absorb some of the risk.

That structure turned uncertainty into flexibility. Since the trade was placed, LULU has continued moving higher, validating both the technical base and the trade construction.

Why This Setup Resonates

Part of what made this trade compelling wasn’t just the chart; it was fundamental observation.

Consumer behavior matters. Brand loyalty matters. And sometimes, real-world signals confirm what charts are starting to hint at.

Lululemon may have been “too expensive” for many shoppers at full price, but incentives, loyalty programs, and brand partnerships with American Express (AXP) continue driving demand. When sentiment collapses but usage doesn’t, markets eventually take notice.

That disconnect is often where recoveries begin.

What to Watch Next

From here, the next major reference point is the 200-day moving average, sitting higher near $230. That level often acts as a magnet once momentum builds.

There is also a prior gap area at $278 that could create short-term friction — but gaps don’t invalidate trends. They simply define where reactions may occur.

Whether LULU ultimately becomes a long-term investment or remains a trade, the key lesson remains the same: Early structure + flexible positioning can create asymmetric outcomes.

Watch this clip on LULU:

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On the date of publication, Barchart Insights did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

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