Shares of Domino’s Pizza, Inc. (NYSE:DPZ), although still higher by about 17% for the year, have been struggling ever since topping out this past June. Despite a good earnings report last week, the stock took another leg lower, which now on the charts is beginning to paint a scary-looking picture for the time being.
When Domino’s reported its latest quarterly earnings last week on Oct. 12, it beat both top- and bottom-line estimates. I could now go into the details of the report and probably find a myriad of both bullish and bearish cases, but the fact is that DPZ stock in reaction to the news fell 4% on Oct. 12, and the stock has continued to slide since.
A former mentor used to remind me that the reaction (of a stock) to the news is more important than the news itself, which is another way of saying that price is the ultimate arbiter and the only thing that gets market participants paid.
When I last offered my thoughts on DPZ stock on Aug. 1 I highlighted a price area around the $180 mark as important technical support. Thus far this area continues to hold but given the price action over the past week we now have more evidence that ultimately this stock will break below support and reach lower.
DPZ Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the multiyear weekly chart we see that when DPZ stock peaked above its up-trending channel (black parallels) this past May and June, it was only a matter of time until a mean-reversion move lower would take hold.
The stock then by late July had fully mean-reverted back to the lower end of said channel, which also coincided (and still does) with the yellow 50-week simple moving average. The stock then held support and rallied right into last week’s earnings report …where the stock promptly hit a wall and as a result marked its charts with a notable lower high (red arrows).
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, the year-to-date price action has traced out a bearish so-called “head and shoulders” pattern. The right shoulder built as a result of the September rally followed by the selling we are seeing thus far after last week’s earnings report.
While DPZ stock increasingly looks to be immediate-term oversold, barring any major bullish reversal the trajectory now looks to point the stock lower toward $180 through a multiweek lens.
Furthermore, the odds increasingly favor ultimately a break below the $180 area and toward $150-$160.
Check out Anthony Mirhaydari’s Daily Market Outlook for Oct. 20.
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