Watches of Switzerland stock analysis: has the rally ended?
Charts suggest Rolex seller Watches of Switzerland could pull back in the short term
Wealthy people had limited options to spend their cash during the pandemic, as they were largely restricted to their homes. This accumulated disposable income has found a way into the luxury watch segment, benefiting Watches of Switzerland, the biggest seller of Rolex watches in Britain.
For the first quarter of financial year 2022, the company reported a revenue of £297.5m ($401.3m), more than double in constant currency terms over Q1 FY21 and a 45.8% growth in constant currency terms when compared with the pre-pandemic sales in Q1 FY20.
The luxury watch segment, which generates 87.1% of the company’s revenue, almost doubled, growing by 97.1%. Strong demand for the luxury jewellery segment also grew significantly, up by 98.9%.
Watches of Switzerland CEO Brian Duffy said: “We have had a very good start to the new financial year with a further acceleration in momentum, versus pre-Covid-19 pandemic growth levels, underpinned by diversified growth across our markets and categories.”
Duffy sounded optimistic for the future, and said: “Looking ahead, we are excited about the planned launch in September 2021 of our Xenia project to further advance the customer experience. We will continue to invest for growth and to advance our strategy to further enhance our leading position in the UK and become a leader in the US luxury watch market.”
The analyst price (GBX) target for Watches of Switzerland according to yahoo finance is £11.01. Could Watches of Switzerland’s stock go up on the back of strong demand for luxury watches? What do the charts suggest? Read our WOSG stock analysis to find out.
Watches of Switzerland share price technical analysis: weekly chart
Watches of Switzerland’s stock price surged from a low of 171p in March 2020 to a high of £10.85 in August 2021, recording a gain of 534% in less than a year and a half.
This sharp up-move had pushed the relative strength index (RSI) deep into the overbought zone, indicating that the rally was overheated in the short term. That seems to have attracted profit-booking in the stock in the past few days.
The RSI is cooling off but is still in the positive zone. The first support on the downside is the 23.6% Fibonacci retracement level of 869p and if this level cracks, the pullback could deepen to the 38.2% retracement level at £7.36.
If the price rebounds off either support, it will suggest that sentiment remains bullish and traders are buying on dips. The bulls will then make one more attempt to resume the uptrend by pushing the price above £10.85. If they succeed, the stock could rally to £12.81.
Watches of Switzerland share price technical analysis: daily chart
Watches of Switzerland’s stock price has been trading inside an ascending channel for the past several months. The bulls pushed the price above the resistance line of the channel in July 2021 but could not build up on the breakout.
On the upside, £10.85 acted as a stiff resistance and the stock made a small double top at this level, which has a target objective of £8.68. This level is close to the support line of the ascending channel, hence the bulls are likely to defend it aggressively.
If the price rebounds off the support line, the stock could continue its upward trajectory inside the channel.
The bears will have to pull and sustain the price below the support line of the channel to signal a possible change in trend. The stock could then drop to £7.00 and later to £6.50.
Watches of Switzerland: stock buy or sell at these levels?
Watches of Switzerland’s share price analysis shows the stock continues to trade inside an ascending channel. The stock may drop to the support line of the channel, which is likely to attract buyers. A bounce off it could keep the uptrend intact while a break below the channel could indicate the start of a deeper correction.
The views and opinions expressed in the article are those of the author and do not constitute trading advice. Trading and investing involve substantial risks and you should always do your own research or contact your financial advisor before arriving at a decision. Never invest more than you can afford to lose.