Even though the stock recouped most of yesterday’s losses, Lululemon Athletica (NASDAQ:LULU) still disappointed investors with its Q421 guidance. Despite causing a milder illness, the Omicron variant is nevertheless taking its toll on the company’s sales.
However, shares have been dropping for quite some time now. The stock is down 28% from its $486 all-time high reached in November, 2021. This sharp bearish reversal did not come out of the blue, though. In fact, the Elliott Wave principle warned us about it as early as Apr. 30, 2021.
Lululemon was hovering slightly under $343 a share when we published this chart nine months ago. From an Elliott Wave standpoint, it was supposed to reach a new record in wave V of the impulse pattern it began back in 2009.
Bears Not Done With Lululemon Stock Yet
Labeled I-II-III-IV-V, this shape suggested a three-wave correction can erase half of Lululemon's value once wave V is over. Where exactly the top was going to form was impossible to predict. However, we thought the bulls would be playing with fire above $450 a share. As it turned out, that wasn’t too far from the truth.
Wave V exceeded wave III in July 2021 and then kept going until it reached $485.83 two months ago. Business was good and the company beat both earnings and revenue estimates in the third quarter. Still, the stock price reversed to the downside.
We cannot tell whether it was simply the market reacting to the Omicron threat two months in advance. All we know is the Wave principle put us ahead of it. LULU fell to an intraday low of $323.50 yesterday, down 33.5% from the top. We don’t think the bears are done yet.
The recent plunge looks like a single wave, not three. Therefore, we believe it is just wave A of a bigger A-B-C zigzag retracement still in progress. Wave B can lift Lululemon to the resistance near $400, before the bears return to drag it below $300 in wave C. A drop to sub-$250 won’t be a huge surprise, either. In our opinion, dip-buyers should think twice before jumping on this one.