Is it finally time to buy Lululemon? Here's what the charts tell me
(See the video above for Frank’s complete chart breakdown.) From its 2017 low to its 2023 high, Lululemon (LULU) surged nearly 1,000%before turning on a dime. As of its October low earlier this month, the stock had fallen 82% from its peak. Along the way, investors had plenty of chances to buy the dip, only to see the stock fall further. Even when LULU entered bear market territory or became oversold, the selling continued. Let’s look at what hasn’t worked and what it would take for LULU to establish a more lasting bottom. 1. Buying when a stock enters bear market territory LULU first declined 20% from its high in early 2024, officially entering bear market territory. That did nothing to stop the downtrend, which eventually extended beyond 80%. 2. Buying when a stock becomes oversold LULU’s 14-week RSI first fell below 30 in April 2024. Again, this did little to stop the bleeding. Over the past two years, the indicator has largely oscillated between oversold territory and the midpoint of its range, a characteristic of a persistent downtrend. 3. A potential inverse head and shoulders pattern At CappThesis, we’re always looking for bullish patterns, both in stocks making new highs and those attempting to bottom. Just a few days ago, we highlighted a potentialinverse head and shoulders patternthat developed after LULU gapped considerably lower in September. A breakout could propel the stock into an area of relatively light overhead supply, potentially reaching a$119 measured-move target. Given the prolonged downtrend, we’re managing risk with a $99 stop. Why this breakout needs to be different Over the past year, LULU has attempted to break out through five separate bullish patterns. Only one produced even a modest advance, which was quickly sold. This underscores the importance of seeing the latest breakout generate sustained upside rather than becoming another failed attempt. The bigger opportunity: Building a long-term base Small bullish patterns often provide tactical trading opportunities, but they can also establish the foundation for much larger formations. If LULU can sustain its breakout, reach $119 and eventually advance toward $130,a much larger basing pattern encompassing nearly six months of price action could emerge. That would provide a broader foundation for further upside and potentially position the stock to challenge its long-term downtrend. An 82% decline alone isn’t a reason to buy What matters is whether LULU can finally demonstrate the technical characteristics of a sustainable bottom. The current pattern offers an initial opportunity with defined risk, and potentially the first step toward something much bigger. Frank Cappelleri is the founder and president of CappThesis , an independent research firm that helps active investors through time-tested chart and statistical analysis. Prior to starting CappThesis, he spent 25 years on Wall Street as an equity sales trader, technical analyst, research sales specialist and desk strategist. DISCLOSURES: (None) DISCLOSURES: All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE 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.
