Elliott Wave analysis has been serving us quite well when it comes to . First it put us several months ahead of the late-2021 bearish reversal and subsequent near-50% drop. Then, it helped us to predict the following recovery to a new record a year and a half in advance. And finally, just when it looked like the sky was the only limit with the stock above $500 a share, it warned us about the current crash.
At $176, Lululemon is down by two-thirds from its all-time high of $516 reached in late-December, 2023. The after-the-fact explanations revolve around the company’s decelerated revenue growth and lack of innovation. But these otherwise logical reasons were far from obvious twenty-one months ago when we shared the Elliott Wave chart below with readers.
At a P/E of 41, Lululemon’s valuation was risky in and of itself. This made us think that the corrective phase of the Elliott Wave cycle didn’t end near $250 in May, 2022, but was still under construction as an expanding flat correction. Its B-wave had just exceeded the starting point of wave A and could be seen as a (w)-(x)-(y) double zigzag structure. According to this count, it was time for a major selloff in wave C to drag the stock below the bottom of wave A, putting downside targets under $250 on the table. Less than two years later now, we know that this is exactly how the situation developed.
In fact, we weren’t bearish enough. Lululemon not only fell below $250, but the bears went for $160, as well. The problem is that wave C was supposed to be a five-wave structure. So far we’ve only seen two three-wave moves to the downside, marked a-b-c, interrupted in between by a sharp recovery to $423 by January, 2025. This most likely means that wave C is going to evolve into an ending diagonal, labeled (1)-(2)-(3)-(4)-(5).
If this count is correct, the first three waves are in place already, while waves (4) up and (5) down have yet to unfold, before the pre-2022 uptrend can resume. According to the theory, wave (4) must touch the bottom of wave (1), putting short-term upside targets near $240 within reach. Then, wave (5) should drag Lululemon below $150 to complete wave C and allow the bulls to finally return. Only time will tell if being that precise is even possible, but it seems that the time to accumulate has arrived, given the stock’s P/E of just 13.5.
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