Chart of the Day – $WEN And Long-Term Resistance

Fast food is about as competitive a business as you can find.  When you’re selling $3-$5 meals, there isn’t much margin to go around.  No surprise then that WEN has been on the edge of profitability for many years now.  The company has earned between $0.15 and $0.20 per calendar year for the past 5 years.  The CEO discussed the difficulty of keeping share in the “value-focused” customer segment, and so Wendy’s would be more focused on promoting its value menu.  Maybe I might make my way over there just yet…

After a spectacular fall in 2007 and 2008, the stock has been remarkably quiet as well.  The monthly chart shows just how steep that descent was:

20 year monthly chart of WEN, Courtesy of Bloomberg

20 year monthly chart of WEN, Courtesy of Bloomberg

On the shorter, weekly time frame, the stock had been in a surprisingly tight range for 3 years, fluctuating back and forth between $4 and $5.50 for the entire period.  The stock finally broke out above $5.50 to start this year, but yesterday’s stagnant earnings report knocked the stock back below $6, and likely deflated much of the enthusiasm behind the recent break:

WEN 5 year weekly chart, Courtesy of Bloomberg

WEN 5 year weekly chart, Courtesy of Bloomberg

My guess is that WEN is still dead money, and wouldn’t be interested in it in either direction.  But I wanted to present it today as an illustration that not all breakouts are created equal.  Simply watching a stock break important resistance is only one piece of a potential long-term breakout play.

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