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 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.
Chart courtesy of TrendSpider.com
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.
