Darden Restaurants, Inc. (DRI) shares traded higher this morning as the parent of Olive Garden, Longhorn Steakhouse, The Capital Grill, Cheddar's Scratch Kitchen and Bahama Breeze satisfies the various tastes of many patrons.
The stock closed Wednesday, March 20, at $108.65, up 8.8% year to date and up 13.4% since trading as low as $95.83 on Dec. 27. Darden stock is also in correction territory at 12.4% below its 2018 high of $124.00 set on Sept. 20. This high was set following a positive reaction to earnings that morning. This day was also a negative "key reversal" on weak guidance and profit taking.
After the restaurant operator beat analysts' estimates before the opening bell this morning, the stock traded as high as $114.24. The company was well positioned for a positive reaction to its earnings report as the stock held its 200-day simple moving average at $108.20. My monthly pivot is $110.78, with my semiannual and quarterly risky levels at $115.63 and $116.64, respectively.
I live in Pasco County, Florida, 25 miles north of Tampa. A couple of years ago, a huge outlet mall was built. Just outside the mall are many new restaurants including Longhorn Steakhouse, Cheddar's and Bahama Breeze, and I love all three. We have a Capital Grill in Tampa. I wish they would build an Olive Garden nearby.
The daily chart for Darden
The daily chart for Darden clearly shows the bear market decline of 22.7% from the Sept. 20 high of $124.00 to the Dec. 27 low of $95.82. The close of $99.86 on Dec. 31 was an important input to my proprietary analytics. This resulted in an annual value level of $94.96 as well as semiannual and quarterly risky levels at $115.63 and $116.64, respectively. The close of $112.11 on Feb. 28 was also input to my analytics and resulted in a monthly pivot at $110.78, which is the key level to hold on post-earnings weakness.
A "golden cross" was confirmed on March 11, when the 50-day simple moving average rose above the 200-day simple moving average, indicating that higher prices would follow. This signal favored a positive reaction to earnings, with these averages now at $109.02 and $108.20, respectively.
The weekly chart for Darden
The weekly chart for Darden will be positive and potentially overbought given a close on Friday above its five-week modified moving average at $109.04. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $81.17, last tested during the week of Oct. 11, 2014, when the average was $44.70. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 78.78 and could be above its overbought threshold of 80.00 this week if the earnings gains are sustained.
Trading strategy: Buy Darden shares on weakness to my monthly pivot at $110.78 and reduce holdings on strength to my semiannual and quarterly risky levels at $115.63 and $116.64, respectively.
How to use my value levels and risky levels: My value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original quarterly, semiannual and annual levels remain in play. The weekly level is changed each week; the monthly level was changed at the end of January and February.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.