WEN Stock is a Juicy Trade Setup

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Shares of fast-food restaurant operator Wendys Co (WEN) have spent the past weeks trading in a defined trading range and increasingly look ready to release higher. WEN stock has been notably underperforming versus the broader indices in 2014 but this may soon change.

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Active traders and investors could look to buy the stock after Tuesday’s marginal break higher.

On Nov. 6, Wendy’s reported its third-quarter earnings, where it missed estimates on both the top and bottom line. Earnings per share were down 25% year-over-year and sales dropped 20%.

The company reaffirmed its outlook for the full year and this seemed to calm investors as WEN stock closed the day higher by a couple of percentage points.

As the company continues to upgrade its image and simplify the menu, its stock price has seen a sharp rise since 2012, which looks set to continue higher through the longer-term lens.

Looking at the multi-year weekly chart, WEN stock dropped into the abyss in late 2009, trading for as little as about $2.70 per share. While the broader market quickly bounced higher in 2009, WEN stock slipped into a prolonged multiyear consolidation period that didn’t begin to resolve higher until the spring of 2013.

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After a few months of breaking higher (past the lower horizontal resistance line) the stock then suddenly went vertical in the second half of the 2013 summer, which was a rally that lasted until February 2014.

From there, and after an 80% rise in seven months, the stock again began to consolidate in a constructive manner, and the longer the stock can hold above its 2014 lows the better the odds of an eventual continuation higher.

On the daily chart we can see that WEN stock since about April looks to have traced out a sturdy bottoming formation within the context of a bigger picture consolidation move that served to work off the sharp 2013 rally.

When the broader market encountered turbulence in October, WEN stock marginally broke below its 2014 support line near $7.80 but then quickly reversed back up. This type of breakdown fake-out moves can be powerful signals that a stock wants to move higher.

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Indeed over the past two months WEN stock quickly rose again and in early November managed to push back above its 200-day simple moving average (red line). In recent weeks the stock consolidated in an orderly fashion above this reference moving average and on Tuesday managed to score a marginal breakout on a daily closing basis.

With a sturdy bottoming formation since April, which could also be looked at as a so-called cup and handle pattern, the path of least resistance for coming weeks looks to be higher.

Active traders and investors could look to buy the stock above $8.80 for a move toward $9.30 for a defined-risk trade setup. Any move back into the recent trading range would likely mean the stock needs longer to consolidate.

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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/12/wendys-co-wen-stock-juicy-trade-setup/.

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