I had the same problem. Turns out it was a loose cable. To be specific: open the bottom cover and orient so you are looking at the machine so the battery is to the bottom right. The cable that controls the battery indicator lights and sleep sensor arises from the top right of the battery and inserts into the motherboard via a small square cable. Reseating the connector fixed the issue.
This is much neater than the original Apple Watch logic board. I'd be really interested to see a teardown of the new Series 1 watch. Did Apple update the internals of both models? The specs note an updated processor, so I think they did...
