Weight Watchers Pullback Could Fatten Your Wallet

Weight Watchers shares are heavily shorted, with the stock recently bouncing from a historically significant trendline

Mar 24, 2017 at 3:25 PM
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Weight Watchers International, Inc. (NYSE:WTW) has been on quite a run since bottoming at an annual low of $9.37 in mid-September, with the shares up 61% to trade at $15.08. However, this only tells part of the story, considering WTW stock surged 27.5% on March 1, following a well-received earnings report, topping out at a 52-week peak of $19.86. Since then, Weight Watchers stock has pulled back, but found a firm foothold atop its rising 40-day moving average. This trendline has served as a springboard for WTW stock in the past, and another big bounce could spark a short-squeeze situation.

WTW stock daily price chart

Specifically, according to data from Schaeffer's Senior Quantitative Analyst Rocky White, there have been six other times that WTW has pulled back to its 40-day moving average in the last three years. While it's been a coin toss as to whether the shares are positive in the subsequent 21-day period, the stock has averaged a whopping 21-day post-signal return of 24.6%.

Plus, there's ample sideline cash available to fuel a short-covering rally. While short interest declined 3% in the two most recent reporting periods, it still accounts for almost two-thirds of WTW's available float! At the stock's average pace of trading, it would take nearly two weeks to cover all of these bearish bets. A continued capitulation from short sellers could translate into a fresh burst of buying power for WTW stock.

Additionally, just three analysts currently cover the shares -- two that maintain a "strong buy" rating, and one that believes WTW stock to be a "strong sell." More upbeat analyst initiations could draw a fresh wave of buyers to Weight Watchers International, Inc.'s (NYSE:WTW) table.

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