Updating another one of the long-term ideas I put forth in this blog from time to time, World Wrestling Entertainment has built on the monthly chart bottoming candle we observed last August in this post.
As I wrote then:
I have always preferred the real battles of boxing over the staged acting that is WWE. Nevertheless, it is hard to not look at that firm’s stock when it has been beaten-down this badly. Long-time readers of mine know that stocks in downtrends can go much lower than seems fair or possible. It happens all the time, which is all the more reason to embrace sound risk management principles and have a clear exit strategy in place before you enter the trade.
At the same time, assessing potential opportunities is still important. …(Y)ou are talking about a stock with a 5.58% dividend yield, coupled with a strong balance sheet (current ratio well above 3). As you can see on the monthly chart below, WWE is back to its all-time lows of the 2002-2003 bear market bottom. After an established, multi-year downtrend, the stock printed a monthly inverted hammer candlestick in May (or inverted “umbrella,” if you will, due to the lack of a head on the hammer), which can signal a potential reversal in trend.
I like this as a long-term idea up to at least $10.50-$12 with a stop-loss below $7.50. The dividend does not hurt either.
Since then, WWE has made technical strides. First, the updated monthly chart below indicates the inverted hammer confirmed to the upside. Now, however, price is pressed up against the declining 20-month moving averages.
So, was the inverted hammer simple a tradable bottom, instead of the bottom?
To determine the odds of which is the correct answer, let us consider the daily chart, second one below. Note the improved price and volume pattern for bulls of late. Price is basing tightly and looking ripe for another breakout higher. I still like WWE as a long-term play, with that $7.50 stop-loss in case the bottom thesis turns out to be as fake as a Monday Night Raw match.
Earnings are scheduled for February 28th.
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