Today’s setup is LULU (Lululemon) . On Sept. 4, the company beat EPS, but sharply cut full-year revenue guidance — triggering a classic knee-jerk selloff of nearly 22% in one day. After tagging a five-year low, the stock has been quietly basing and is starting to show signs of a recovery. For this trade, I’m consulting three technical indicators to build the case. RSI (Relative Strength Index) I’m starting with a classic technician’s tool: RSI. On LULU, RSI dipped into oversold territory on Sept. 5 and recently pushed back above the 30 level on Sept. 17. That transition out of oversold is a common reversal tell—and it’s exactly what we’re seeing here. Directional movement index (DMI) The DMI has three components—DI+ (green), DI, (red), and ADX (blue), which measures trend strength. When DI, sits above DI+, sellers have the upper hand. But when the slopes flip—DI+ starts rising while DI, rolls over—it often flags an early momentum shift. That’s what LULU’s chart is signaling now: DI+ is pushing higher and DI, is fading, suggesting selling pressure is easing and bullish momentum may be starting to build. MACD (Moving Average Convergence Divergence) The MACD is a solid reversal gauge. The standard (12, 26, 9) settings are popular but can lag, so I often switch to (5, 13, 5) for quicker reads. On LULU, the MACD line (blue) crossed above the signal line (yellow) on Sept. 16, adding another layer of confirmation to the bullish setup. If you’re into setups like this, I’m unlocking the options trade scanner from my newly launched trading algorithm free for today for CNBC readers—grab a few more trades while it’s live. Here’s the scanner . The trade setup : LULU 170-175 bull Call spread To play LULU to the upside, I’m using a bull call spread — defined risk, defined payoff. The base setup: buy the $170 call and sell the $175 call as one unit. If LULU is trading at or above $175 by expiration, the spread pays its full $5.00 value—turning roughly a $2.50 debit into a 100% return. With 10 contracts, that’s $2,500 at risk for a potential $2,500 gain. Here is my exact trade setup: Buy $170 call, Oct. 17 expiry Sell $175 call, Oct. 17 expiry Cost: $250 Potential profit: $250 — Nishant Pant Founder: https://tradewithmaya.com https://tradingextremes.com Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: Nishant has a 170-175 Lulu Call Spread expiring on Oct. 17. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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