Weight Watchers International, Inc. (WTW) broke out above 2011 resistance last week, lifting to an all-time high at $95.62. Oprah Winfrey sold about 2 million of her 7.5 million shares in March 2018, netting around $110 million, while her remaining stake of 5.5 million shares is now worth more than one-half billion dollars. That marks an extraordinary return since she bought 10% of the company at $6.79 per share in October 2015.
It isn’t too late to jump on board this moving train, but market players need to pick their spots wisely because this volatile issue can grind through broad trading ranges without disturbing highly bullish technicals in place since 2016. In fact, a 20-point decline from Monday’s open would just reach the 50-day exponential moving average (EMA), which price action has used as a rally springboard repeatedly in the past 16 months.
The stock is also trading less than five points under $100, marking a psychological resistance level that could take months or years to overcome. However, momentum rallies are tough to find in 2018, and the company’s targeted overseas operations may offer a safe haven against worldwide trade tensions that are threatening to upset the nine-year bull market. Even so, it’s best to take the smart route and wait for a consolidation or pullback to strong support in the upper $70s. (See also: Billionaire Oprah Makes Bank on Weight Watchers Windfall.)
WTW Long-Term Chart (2001 – 2018)
The company, founded in 1963 by Queens entrepreneur Jean Nidetch, came public at $30.00 in November 2001 and entered an immediate uptrend that topped out near $50 in October 2002. The subsequent decline found support in the low $30s in 2004, giving way to a choppy uptrend that ended in the mid-$50s one year later. The stock tested resistance in 2007 and turned sharply lower with world markets during the 2008 economic collapse, dumping into the mid-teens.
An uptrend into the new decade caught fire in 2011, breaking out above six-year resistance before fizzling out in the mid-$80s in 2011. It carved a double top pattern into 2012 and broke down, relinquishing points at the same rate as the prior advance. The downtrend reached the 2009 low in 2014 and broke down in 2015, generating a climactic sell-off that posted an all-time low at $4.51 just three months before Winfrey announced her stake.
The euphoric buying spree after the news stalled under 2014 resistance at $30, yielding a rounded correction, followed by a 2017 breakout that has gathered tremendous force in the past year. It finally reached 2015 resistance in May 2018 and spent just four weeks testing that level before breaking out on June 11 and lifting into the upper $90s, where the influence of the $100 level is likely to come into play.
The monthly stochastics oscillator crossed into a buy cycle in January 2018, after an aborted sell cycle, and has just reached the overbought zone. Strong uptrends can spend months carving paths through this extreme level before weakness in lower time frames triggers a bearish crossover and intermediate decline. However, price action has carved just seven sideways months since December 2016, increasing the odds that long-term mean reversion will take control.
On-balance volume (OBV) broke out to a new high after Oprah reported her stake and has drawn a long series of new highs since that time. This signals outstanding institutional sponsorship as well as healthy speculative fervor. Even so, the three-week rally has posted unfilled gaps at $80 and $90, marking magnetic targets when the latest buying wave comes to an end. (To learn more, see: Uncover Market Sentiment With On-Balance Volume.)
The Bottom Line
Weight Watchers is firing on all cylinders, breaking out to an all-time high on heavy volume. It isn’t too late to get on board, but choose your spots wisely, with pullbacks that fill gaps down to $80 offering the most advantageous reward:risk. (For additional reading, check out: Weight Watchers Stock Extends Impressive Rally.)
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>