One group that was hit really hard during the financial crisis and the resulting bear market was the restaurant sector. With so many consumers losing their jobs and their homes, market participants braced for the worst and priced in a scenario where consumers would avoid eating out at all costs. However, this group rebounded far earlier than anyone expected and many stocks are back to or near all-time highs.

Chipotle Mexican Grill (NYSE:CMG) may not be a fair example to highlight for trading at all-time highs; after all, it only started trading near the tail-end of the prior bull market. Nevertheless, even its prior parent company, McDonald's Corporation (NYSE:MCD), is close to all-time highs. CMG rallied very strongly toward the end of 2010 and has been consolidating those gains for the past few months. While the breakout attempt in February was pretty strong as well, the resulting price action would still be characterized as part of the larger consolidation. However, CMG is now attempting to clear the $260 level, which has been an important area of resistance. If CMG can get above the congestion in this area, it could very well head to new all-time highs.

Source: StockCharts.com



BJ's Restaurants (Nasdaq:BJRI) is another restaurant stock trading near all-time highs. BJRI successfully cleared long-term resistance near $28 last November, and has been quietly consolidating since then. The chart structure is shaping up nicely as BJRI continues to see progressively higher lows. The $39 level has been blocking all advances so far, resulting in an ascending triangle pattern, which has persisted for several months. This pattern is typically a continuation pattern and with BJRI near the apex of the triangle, it could be ready to attempt a breakout very soon.

Source: StockCharts.com



Yum! Brands (NYSE:YUM ) is also flirting with an end to a recent consolidation. YUM has been in a sideways range since last November and is currently near the top of that range. Looking closer, YUM had been trading in a tighter channel within the consolidation from November through February before a false breakdown late in February. YUM then gapped above the top of the channel and completely changed the character of the stock. Traders should keep a close eye on the $53 level; a push above this could take YUM to all-time highs. (For more, see Track Stock Prices With Trendlines.)

Source: StockCharts.com



While Denny's Corporation (Nasdaq:DENN ) is not near all-time highs, the stock has also been participating in the recent strength percolating through the restaurant stocks. DENN already cleared the consolidation that began last November, although it ended up settling into a second tight consolidation above its prior base. DENN is now attempting to break out of this "base on base" pattern and could continue to rally above $4.25.

Source: StockCharts.com



The Bottom Line
Traders should certainly keep their eyes on this group. Not only was it one of the strongest groups over the past year, it is also coming off a healthy consolidation of several months. Stocks breaking out from long and healthy bases often suffer fewer failures. With so many of these stocks sitting just under all-time highs, it's possible that a breakout would have good follow through. While consumers have certainly been faced with tightening wallets, their appetite for restaurant foods persists. (For more, see Sinking Your Teeth Into Restaurant Stocks.)

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Forex Strategies

    Two Great Currencies To Profit From Oil Volatility

    U.S. dollar crosses with Canadian and Australian dollars offer easy access to crude oil trends due to their tight correlation with energy futures.
  2. Investing

    Redefining the Stop-Loss

    Using Stop-losses for trading doesn’t mean ‘losing money’, but instead think about the money you'll start saving once you learn how they work.
  3. Fundamental Analysis

    10 Major Companies Tied to the Apple Supply Chain

    Apple has one of the best supply-chain models. Here are some of the top businesses involved, and the benefits and challenges for all.
  4. Chart Advisor

    3 Ways to Trade the Rising Volatility

    With volatility increasing in the markets, many are turning to these three volatility-capturing exchange-traded products.
  5. Chart Advisor

    Big Double Top Patterns On the Verge of Breaking

    These stocks have created big double top chart patterns, and are on the verge of breaking the patterns to the downside--a bearish signal.
  6. Term

    What are Non-GAAP Earnings?

    Non-GAAP earnings are a company’s earnings that are not reported according to Generally Accepted Accounting Principles.
  7. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  8. Options & Futures

    Use Options to Hedge Against Iron Ore Downslide

    Using iron ore options is a way to take advantage of a current downslide in iron ore prices, whether for producers or traders.
  9. Chart Advisor

    Gold Struggles to Climb Higher and May Fall Soon

    Traders will be watching the price of gold over the coming weeks. We'll take a look at how a couple major moving averages are suggesting that the next move could be lower.
  10. Technical Indicators

    Use Market Volume Data to Determine a Bottom

    Market bottoms often carve out classic volume patterns that let observant traders make fast and accurate calls.
RELATED TERMS
  1. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  3. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  4. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  5. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
  6. Long-Term Debt

    Long-term debt consists of loans and financial obligations lasting ...
RELATED FAQS
  1. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  2. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  3. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  4. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  5. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  6. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!