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Shares of World Wresting Entertainment were slammed at the opening bell Tuesday in a clear indication of how market moves can have much more influence on a stock than a positive event for a company’s business.
Shares fell about 3% in afternoon trading.
For WWE fans, that might be counterintuitive, given that the Internet was wowed last night by a ring collapsing during Monday Night Raw.
But a block trade by Morgan Staney took the legs out from under any goodwill from that event.
It’s a classic example of the difference between valuation and pricing, as illustrated by NYU Professor Aswath Damodaron.
“You can value an asset, based upon its fundamentals (cash flows, growth and risk) or price it, based upon what others are paying for similar assets, and the two can yield different numbers,” Damodaron writes.
Block Trade Calls the Tune Today
While Monday night was Raw, Morgan Stanley completed a block trade of WWE shares priced at $21.15, a discount to Monday’s close of $21.75.
A block trade is when an institution wants to execute a large purchase of shares from another party at a discount and sell them later for a profit. The trades are usually outside of market hours to prevent volatility in the stock. Block trades were extremely popular last year as Wall Street firms looked for deals to replace lost revenue from an stagnant IPO market, The Wall Street Journal reported.
Also Tuesday, Guggenheim Capital said it lowered its stake in WWE by 27.4%, according to a filing with the SEC.
The stock jumped following its earnings report Feb. 9. The company will report its fiscal first-quarter results May 4. Wall Street is looking for a profit of 10 cents per share on revenue of about $184 million.
It’s Not Time to Short Yet
Shares of WWE are up 14.7% year to date, easily beating the broader market. But block trades have a knock-on effect on charts. So, where does the stock move from here?
Today is the first move under the 50-day moving average since the start of 2017, said technical analyst Tim Collins.
“That signals a big change in character,” Collins said. “It is holding the 13-week moving average, so you really want a close under $21 to trigger a true short.”
There is a minor bearish divergence in the Moving Average Convergence Divergence (MACD), but the trend is still holding bullish, Collins said.
“It’s more yellow flag action than red at the moment,” he added.
is a Heavy contributor. He was previously executive editor at TheStreet and held senior editorial positions at CNBC.com and MSN Money. He can be reached on Twitter at the handle @DriftContinent.
April 18, 2017 12:46 pm