The Make-or-Break Chart Level for Wingstop Stock

Short sellers are betting against Wingstop shares, while Goldman Sachs calls the restaurant stock a conviction buy

May 23, 2017 at 2:55 PM
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Wingstop Inc (NASDAQ:WING) was trading up 4.6% at $31.00 per share earlier in the session, but the stock's bullish momentum has cooled off this afternoon (against the backdrop of a fairly muted Dow Jones performance today). At last check, WING shares were just barely north of breakeven, up a penny at $29.66 -- and down 10.8% from their May 5 post-earnings high at $33.25.

That peak earlier this month was Wingstop stock's third major high north of $33 in the last nine months, with each quickly followed by a steep pullback. The Aug. 15 high immediately preceded a correction that exceeded 20% by early November, while a Dec. 8 move above $33 heralded the start of a 26% slide over the next three months.

Having recently completed the third prong of a triple top, it's possible that WING could be starting to trend lower in earnest, reversing the positive momentum that carried it nearly 45% higher during 2016. A decisive move below the $25 area would confirm this bearish pattern is playing out.

wing triple top may 23

Short sellers seem convinced, having amassed a sizable position against Wingstop stock. There are currently 8.02 million WING shares sold short -- an accumulation that has more than doubled since the start of December. Short interest now accounts for 28.2% of the equity's float (or 16.9 times the equity's average daily trading volume).

Conversely, options traders haven't taken much interest in Wingstop. There are fewer than 5,500 calls and puts in open interest on WING options -- though, by the stock's own norms, this is actually a fairly significant amount. Trade-Alert pegs current WING open interest levels in the 91st annual percentile.

It's worth noting that today's early boost in Wingstop stock was sparked by a "conviction buy" nod at Goldman Sachs. In a 13f filing dated March 31, Goldman disclosed holdings of 930,000 Wingstop shares.

On the charts, WING is struggling to hold recent support at its 30-day moving average, which roughly coincides with its year-end closing price. Slightly further south is the 200-day moving average around $29.05; this trendline has acted as both resistance and support this year, and it's not insignificant that a WING pullback to the vicinity of its 200-day moving average would fill the earnings-related bull gap from earlier this month.

Goldman's bullish note on Wingstop today can be viewed as a vote of confidence by at least one of the big-money players in the restaurant chain's corner -- but the stock's lackluster reaction to the high-profile upgrade isn't encouraging. If deep-pocketed investors don't step up to defend Wingstop shares around the 200-day moving average, a make-or-break test of $25 could be the stock's next move.

Prospective WING options traders who expect a sharp directional move should proceed with caution on the lightly traded stock. Trade-Alert places Wingstop's 30-day at-the-money implied volatility at 26.0%, in the 3rd annual percentile -- meaning WING option premiums are pretty cheap, from a volatility standpoint. But the objectively low levels of volume and open interest in the stock's options means that bid/ask spreads on the contracts are still discouragingly wide.

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