Back on Oct. 19, Weight Watchers International announced that Oprah Winfrey had acquired a 10% stake in the company and would be taking a seat on the board of directors. The stock closed that session at $13.92, up a whopping 105% from the previous session's close of $6.79. We became curious about that rally and ran Weight Watchers International through the objective decision support engine to see whether the stock was headed for more gains or for a reversal. The resulting forecast, published that day, was that the stock might see a brief pullback but then would launch a rally toward toward the $30 +/-$3 zone. After another potential selloff, the stock would see even more bullish potential toward $40 +/-$3.
Below is the updated monthly bar chart from the original article. In the graphic from October, prices had just created the third little bar to the right of the lowest low, labeled (5). We detailed several reasons why the next move of significance should be sharply higher and initially test the $30 +/-$3 zone before possibly the $40 +/-$3 zone, reminding readers of Ralph Elliott's premise that the news will arrive to justify the forecast.
This chart shows several of that article's predictions have materialized. Although the forecast pullback didn't materialize immediately and didn't take the stock back to $10 as we'd predicted, a pullback did happen within a few days, pulling shares back about 4 points after they'd tested $20. Let's call that a delayed bulls-eye. Thankfully, we had written that "the decision support engine strongly suggests not selling this stock, though, and only profits on any previous long entry be protected. Buying actions are indicated for the intermediate to long term."
Next, the initial resistance of $30 +/-$3 was reached a month later, on Nov. 18, which we'll consider a direct bulls-eye. This move to $30 was forecast to take 12-24 months, but it took only one month. These dynamics caused the stock's price to reach an extreme of 3.5 standard deviations, which contain 99.8% of normality. In other words, that level is statistically impossible to maintain for more than a couple of hours or days. Hence, the price has retreated all the way back to the gap left by the Oprah news and has tested the $10 support level from our original analysis, touching the 200-day moving average in the process.
This correction relieved the overbought extreme that manifested after the Oprah news and has provided this stock with the stability it likely needs to mount its next rally. Right on schedule, after the rise to $30, the recent corrective decline retraced all the way back to between the Fibonacci 62% and 78% support levels, which are commonly seen after dynamic rises. This brought the stock's price down into the green buy box.
What's next? Although we can't rule out a further test of the $13 +/-$3 zone, which is allowed by the stochastics, which are back into the neutral 50% area, the weekly bar chart (not shown here) has just triggered a new buy signal, as its stochastics just crossed up from below the oversold 10% extreme. The next six to 12 months should see a new rally that eventually reaches the $35 +/-$3 zone. Although it is not anticipated, if the stock closed below $10, that would mean something has gone very wrong with the analysis, and would suggest the stock could decline to $5 +/-$1.
For now, buying against a hard sell stop of $10.05 generates a risk/reward ratio of at least 1-4, if $35 is eventually reached. That is an buying opportunity that is hard to find!
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.