Shares of pizza delivery giant Domino’s Pizza (DPZ) rallied sharply Tuesday on the back of a better-than-expected third-quarter earnings report. By doing so, the stock strongly outperformed the broader market and staged a notable breakout move.
While the move shouldn’t be chased higher immediately, active traders and investors would be wise to keep a close eye on DPZ stock in coming weeks for continuation buying opportunities.
Domino’s Q3 earnings came in at 63 cents per share, beating analyst estimates by 2 cents. Revenues of $446.6 million, powered in part by 7.7% domestic same-store growth, also beat the Street. A number of brokers reiterated their bullish calls on DPZ stock on the back of the news, but kept their price targets near or marginally below the stock’s Tuesday closing levels of $84.30.
DPZ Stock Charts
From a multiyear perspective, DPZ stock remains in its well-defined uptrending channel. In fact, Tuesday’s 11.33% rally took the stock right back to the upper half of the channel, while momentum through the lens of the Relative Strength Index (RSI) looks to be turning back up.
Importantly, DPZ stock spent the majority of 2014 consolidating its big 2013 rally in a constructive manner, which ultimately led to Tuesday’s big breakout rally.
On the daily chart, we see that after a final rally in February, DPZ stock finally ran out of steam in mid-March, leading to a consolidation move that held the stock above its 200-day simple moving average (red line) for the most part. The price action in recent weeks took place in tighter and tighter ranges, which often leads to a bigger directional move, as it did with Tuesday’s breakout rally. The rally also came on a big spike in volume, which adds further credibility to its sustainability.
Given the magnitude of the one-day breakout move, odds are that DPZ will try to settle into some type of consolidation phase in coming days/weeks, which might even get Domino’s to retest its previous all-time highs from March (orange dotted line), around the $80 area.
Active investors and traders looking to play the stock from the long side thus would be wise to exercise some patience. While the stock’s breakout move is constructive on all time frames, some consolidation of the breakout rally could go a long way to ultimately push the stock toward the $92 area, which is a measured price target of a big 2014 consolidation pattern.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
