Weight Watchers (WTW) has been on a tear the last few weeks. Now, my last trade on WTW did not work out so well because I thought the stock was going to pull back after it had a massive move higher. However, this time is different. Our community is looking at this as a short, and I have a feeling this trade is going to work.
The Catalyst Behind WTW
Weight Watchers, which Oprah Winfrey is invested in, ramped up a couple of weeks ago on news that Oprah was going to run for President of the U.S. in 2020. This was great to hear and I wish her the best if she does decide to run later on.
However, this news sent Weight Watchers to the moon, and I did not really understand how Oprah running for President pushed the stock higher. Oprah owns around 10% of the company with an option to buy an additional 5% stake. This could have been speculation Oprah may implement a health program across the U.S…I don’t know, I think it’s just all speculation. Now, let’s get into why I think WTW could pull back soon.
WTW Got Hit After Oprah Announced She’s Not Running for President
Here’s the kicker: Oprah officially announced she was not running for President, causing WTW to drop around 5 points before recovering.
Look at the WTW chart of what happened the day of her announcement:
The 40% run up that Weight Watchers had since the Oprah rumors of her running for President. Now that this is off the table, the stock is still holding onto those 40% gains over just a few weeks? I’m calling bull on this.
I’m looking to short the actual stock, and I bought some put options. I’ll be stopping out if this thing makes new highs though.
Here are my signals on Weight Watchers:
The 13 simple moving average (SMA) crossed below the 30 SMA on the hourly chart, which is considered a bearish signal. I’m looking for this to potentially pull into the 200-period SMA.
Oprah finally confirmed she was not running for President, and this actually hit WTW. Stories of Oprah potentially running for President fueled the run up, but that’s off the table now. I think WTW could potentially have a big drop.
I’m currently long put options in WTW.
Jeff Bishop is lead trader at TopStockPicks.com. He runs short-term trading strategies, using stocks, options and leveraged ETFs.