Weight Watchers Moves Into Oversold Territory After Downgrade

MACD Divergence and Oversold RSI Could Point to a Rebound

Weight Watchers International, Inc. (WTW) shares fell more than 6% on Tuesday morning after JPMorgan downgraded the stock to Underweight with a price target of $25.00 per share. The analyst cited declining app users during the first quarter and recent technical issues that caused a bad user experience for new enrollees. These sentiments amplified existing concerns over waning subscriber growth in recent quarters.

Despite the negative sentiment, some analysts remain bullish on Weight Watchers stock. Oppenheimer reiterated its Outperform rating and adjusted its price target to $40.00 last week, noting that the company's solid business model isn't "deteriorating completely" as the market's extreme reaction has suggested. The stock is trading nearly 30% lower since the beginning of the year and is 73% off of its 52-week highs.

Traders will be keeping a close eye on the stock ahead of its earnings release on Feb. 26. Over the past nine years, the stock has fallen after nearly 60% of its earnings announcements, but in this case, the shares are already trading more than 50% lower since the company's last earnings report. Most of the bad news could already be priced into the stock, setting the stage for a positive surprise in the earnings announcement.

Technical chart showing the share price performance of Weight Watchers International, Inc. (WTW)

From a technical standpoint, the stock broke down from reaction lows and S1 support at $28.36 to fresh 52-week lows. The relative strength index (RSI) fell back to oversold levels of 30.93 while the moving average convergence divergence (MACD) continued its uptrend. The MACD divergence and oversold RSI suggest that the stock could be ready for a near-term rebound after a prolonged downtrend.

Traders should watch for a rebound from trendline support toward the upper end of its price channel at $30.00. If the stock breaks down from support, traders could see a move to S2 support at $24.72 before a rebound. If the stock breaks out from trendline resistance, traders could see a move toward the pivot point at $34.36. The bears appear in control of the market now, but the sell-off may be overdone.

The author holds no position in the stock(s) mentioned except through passively managed index funds.

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