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Wendy's Stock: Buy, Sell or Hold on Reports of Take-Private Bid?

Wendy's stock is rallying through resistance on hopes of a take-private bid from its largest investor. Here's how to trade it from here.

Shares of Wendy’s  (WEN) - Get Wendy's Company (The) Report have been hit, falling more than 25% after closing lower in nine straight weeks.

The stock will look to shake off its weekly losing streak this week with Wednesday’s 10% rally.

The fast-food chain's shares are climbing on reports that its largest shareholder, Trian Partners, is considering taking the chain private.

Run by well-known activist investor Nelson Peltz, it’s more than just a large investor making some noise. Peltz has been invested in Wendy’s for almost two decades and is its chairman.

Trian has an 11.8% stake in the company and Peltz & Co. clearly sees value in the stock after its recent decline.

So while Wendy’s tries to borrow ideas from Taco Bell  (YUM) - Get Yum! Brands Inc. Report and as other fast-food companies snap back at Wendy’s breakfast menu, there’s even more drama unfolding for the company.

Trading Wendy’s Stock

Daily chart of Wendy's stock.

Daily chart of Wendy's stock.

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Wendy’s stock is clearing a key level on the chart at $17.50. The stock earlier this month tried to hold that level as support but failed to do so. The shares tumbled down and temporarily broke below $16.

Then, on a rebound, $17.50 was resistance. When Wendy’s pulled back, though, it put in a higher low as it failed to break below $16. 

These were all positive developments and now we’re seeing Wendy’s shoot through resistance. More notably, the stock is also reclaiming the 23.6% retracement and the 10-day moving average.

From here, it will be key to see whether it can close above these marks and can then push through the 21-day moving average, which is acting as resistance today.

Above the 21-day could open up some interesting upside potential, with the 38.2% retracement near $19. Just below that level is former channel support, but just above $19 is the 10-week moving average and daily VWAP measure.

Of all these observations, I would consider the 10-week and VWAP measure more important than prior channel support. All said, though, the $19 area would be key on a further rally.

On the downside, a move back below $17.50 puts the 10-day in play. Below $17 and we could be looking at a deeper drop back down toward $16.

Keep in mind: A lot of the price action here is becoming headline-driven and binary. That means an offer or lack thereof would be a monumental development in regard to the price action.