2023-11-07 13:56:36 ET
Summary
- Ulta Beauty, Inc. stock price likely reached a significant top in May of this year.
- The company's low valuations may present an attractive long-term entry point for value-oriented investors. But, we show what price must do to prove that.
- The stock is currently following the projected path of a corrective bounce before potentially reaching a lower low. Follow along as we share our Wave Setup for Ulta Beauty, Inc.
By Levi at Elliott Wave Trader; Produced with Avi Gilburt.
It was back in May of this year that we began to strongly consider the possibility that Ulta Beauty, Inc. ( ULTA ) had reached a significant top in price. And once we had a high-probability structure in place, it became a featured Wave Setup for our members. The top struck at $557 on May 1st is likely to stick for some time. First, we’ll take a look at the fundamentals with Lyn Alden. Then, a brief recap of the road that the stock price has taken since that important high hit. And finally, what we see as the most likely path forward.
The Fundamentals With Lyn Alden
“Ulta Beauty is trading at historically low valuations, likely in part due to investor concerns about the risk of growth deceleration and recent margin pressure. However, the company has a very strong balance sheet, and this may represent an attractive long-term entry point for more value-oriented investors.
If the company has a couple more weak quarters or there is a broad equity sell-off, there's nothing preventing the stock from hitting lower lows, but at these levels investors should be looking at it to see if it's suitable as a long opportunity, either at this level or other defined levels.
If it some point the price goes above the wave 4 expectation and starts to invalidate the prospect for further declines, then it might be worth a revisit as a potential long.
Curious to see how this one shakes out.”
A Recap Of The Road Taken So Far
Let’s go back in time just a bit to see how this began to shape up as a short for Wave Setups. Here’s the initial post from Garrett Patten providing the markers for the general path expected at that time:
At any moment, our Wave Setups feature can have upwards of 50 charts, both short and long positions, that we are actively tracking to update as they progress in their respective structures. There was one to the ULTA setup on September 26.
And now just recently, Zac Mannes updated the setup on November 2.
You can see from the price action that ULTA seems to be cooperating nicely with the projected path and is bouncing in what is counted as wave 4 of [C] of the larger Primary A wave. As is the case in all of our Wave Setup structures, we will share targets, resistance/support levels as well as where the setup would invalidate. The path anticipated is a low in Primary A followed by a corrective bounce in Primary B that should retrace perhaps 50% or more of the decline from the $557 top.
For ULTA, the current risk near term is a move above the $414 level. If below that level then we anticipate another lower low to the $345 target that was projected back when price was closer to $500.
An Important Reminder
This cautionary message is on the front page of our trading room.
“We want everyone on Elliott Wave Trader to understand that markets are fluid, dynamic, non-linear systems. In order to trade such systems, one has to develop the experience necessary to navigate its complexities. Therefore, we strongly suggest that a trader takes the time to learn Elliott Wave and supporting technical analysis BEFORE beginning to trade his or her hard-earned money. Unfortunately, we have seen too many new traders attempt to jump in with both feet without an appropriate background. This is the easiest way to blow up your trading account, so we strongly caution against it. Also, our general advice is that you do not enter any trade with more than 3% of your trading account and ALWAYS use stops.”
A key takeaway from this is to comprehend the "fluid, dynamic and non-linear system" we track and trade. What does this mean exactly? Well, remember that we are charting human behavior in motion. Humans are not linear in their decision making process. In fact, several studies have shown that what is manifested on stock charts is actually biology in action.
Avi Gilburt has written many pieces about this subject. Here is an excerpt from one of his articles citing a study regarding how our basic biological responses shape stock prices:
“Stock markets are fascinating structures with analogies to what is arguably the most complex dynamical system found in natural sciences, i.e., the human mind. Instead of the usual interpretation of the Efficient Market Hypothesis in which traders extract and incorporate consciously (by their action) all information contained in market prices, we propose that the market as a whole can exhibit an ‘emergent’ behavior not shared by any of its constituents. In other words, we have in mind the process of the emergence of intelligent behavior at a macroscopic scale that individuals at the microscopic scales have no idea of. This process has been discussed in biology for instance in the animal populations such as ant colonies or in connection with the emergence of consciousness.”
Conclusion
We have an extensive Education library available at Elliott Wave Trader. As well, we want to teach others this methodology. Three times a week we have beginner and intermediate level videos where we show the exact way we count the waves and give in-depth analysis techniques. This methodology, if you give it the chance, will change the way you invest forever. More on that can be found here .
There are many ways to analyze and track stocks and the market they form. Some are more consistent than others. For us, this method has proved the most reliable and keeps us on the right side of the trade much more often than not. Nothing is perfect in this world, but for those looking to open their eyes to a new universe of trading and investing, why not consider studying this further? It may just be one of the most illuminating projects you undertake.
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Ulta: Beauty Hangover Still Underway