10.11.2022
World Wrestling Entertainment's chart is in an uptrend on an absolute and relative basis. Price is offering an immediate long opportunity with a desirable reward to risk ratio.
THE BIG PICTURE
Today’s idea is courtesy of a scan. The scan asked to find members of the S&P mid-cap 400 printing 252-day highs. Why the S&P 400? Take a look at the relative strength chart below. It is clear that mid-caps are currently showing strength over large and small caps.
S&P Cap Tiers Relative Strength. Click to enlarge.
The scan returned only 4 results, and WWE stood out. It was the only one in an uptrend on both an absolute and relative basis. The chart below shows the S&P 400 ETF (MDY) in the bottom panel. MDY has been trending lower all year. The upper panel shows WWE. WWE has been trending higher all year.
WWE & MDY Daily. Click to enlarge.
Our next chart shows WWE weekly. Putting the recent strength into context, WWE rallied more than 900% before printing a double top in 2018/2019. Price then continued lower into the 2020 Covid-low. From there, like most, WWE rallied more than 150%. That brings us to now, October 2020. The difference between WWE and most other stocks is, WWE has continued higher through 2022 while most have not. The middle panel shows the relative strength of WWE against the S&P 500 ETF (SPY). The bottom panel shows the relative strength of WWE against the S&P 400 ETF (MDY). Both relative strength lines are printing almost 3-year relative highs.
WWE Weekly. Click to enlarge.
With price still below its 2019 all-time high, we can expect some overhead supply to come to market if price continues higher. The all-time high, price's trend channel, and the current rectangle consolidation hint at a price target somewhere between $95 and $100. Using the Point & Figure horizontal methodology, a horizontal count also speaks to a target near $100, though the conservative target is $85 which matches a measured move from the daily chart. See below. Here is the Point & Figure chart.
WWE Point & Figure Chart. 3 Box Reversal. Box Size 1. Click to enlarge.
ZOOMING IN
The daily chart of WWE below shows us that price remains in a rectangle. A measured move projects a target of $84, which is just 1 point away from the conservative Point & Figure target. RSI shows us we are not overbought, though we are close.
WWE Daily. Click to enlarge.
THE TRADE DETAILS
In terms of tactics, as always, there are many, many options. Some include, entering with a market order at tomorrow's open and a stop just below the most recent consolidation rectangle. Other tactics include entering on a breakout, or waiting for a breakout and retest. We could even try a buy-limit order below WWE's current price, hoping to enter lower towards the blue demand line. For the sake of decisiveness, here is the decision.
Enter with a market order at open: $74.94.
Sell-stop: $71.90. -3. 1.5x ATR10.
Target 1: $84.+9. Target 2: $100.
Reward/Risk on target 1: 3:1.
ATR10: 2.02.
WHAT'S NEXT?
If probabilities go our way, then we will watch price move higher towards $84 and adjust our trailing stop and/or take partial profits on the way to $100. If not, our stop will take us out with a small loss. If we do get to our targets, we can then plan for a longer campaign.
As always, thank you for reading. This article is for educational and informational purposes only. Trade at your own risk. The author may or may not have a position in the securities mentioned. Read our full disclaimer here. Please reach out with any feedback or comments. I would love to know if you agree, disagree, or don't care at all. Louis@eastcoastcharts.com
Comments