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Chart of the Day: Gap Vs. Lululemon

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Lululemon appears to be in the process of a long-term breakdown while Gap has shown impressive strength in the last year.

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Ashley Lutz at Business Insider had an article yesterday discussing the yoga pants wars between Gap (NYSE:GPS) and Lululemon (NASDAQ:LULU). I have no idea about the yoga pants market, and little view on fashion trends (I had no idea what Athleta was until this article), but her best bullet points (in my view) in favor of Gap-owned Athleta were as follows:
  • Athleta has more affordable price points ($69 vs. $98 for LULU).
  • Athleta has a lenient return policy.
  • Athleta has a larger selection.
  • Athleta doesn't have supply chain issues.
She had several other points, but those were the most salient. Besides the suspicious headlines last week on LULU's discussion of its pants inventory and production, the chart looks to be in the process of a long-term breakdown:


LULU three-year daily chart, Courtesy of Bloomberg

Meanwhile, GPS has shown impressive strength in the last year. It had a long-term breakout, shown by the 20 year monthly chart:


20-year monthly chart of GPS, Courtesy of Bloomberg

After the pop and drop during the tech bubble, GPS was a stagnant stock for about a decade. It traded between $10 and $25 for practically that entire period. When that range was finally broken in 2012, the stock shot higher as fresh, new buyers overtook long-term sellers. The stock has now traded above the important $30 for more than six months, and that should act as long-term support going forward.

Looking at the one-year daily chart, GPS ran into trouble near its prior high of $37.85 from October:


One-year daily chart of GPS, Courtesy of Bloomberg

In the short-run, the stock is in a range between $30 and $38, but the long-run technical picture is brighter than it has been in many years for GPS.

In the fickle world of fashion, market players are voting that Gap has overtaken Lululemon for the leader's perch for now.

This item by Enis Taner was originally published on RiskReversal.com.

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