Shares of Darden Restaurants, Inc. (DRI) traded up to an all-time intraday high of $125.33 on May 21 as the parent of Olive Garden, Longhorn Steakhouse, The Capital Grill, Cheddar's Scratch Kitchen, and Bahama Breeze gets set to report earnings before the opening bell on Thursday, June 20. The stock closed Monday, June 17, at $118.31, up 18.5% year to date and in bull market territory at 23.5% above its Dec. 27 low at $95.83. The stock is currently 5.6% below its all-time high.
Analysts expect Darden to report earnings per share of $1.73 to $1.75 when it discloses results before the open on Thursday, June 20. The stock is reasonably priced with a P/E ratio of 21.96 and dividend yield of 2.51%, according to Macrotrends. Analysts indicate that the restaurant conglomerate always focuses on food, service, and atmosphere, highlighting that its efficient cost-containment programs will improve margins and hence the bottom line.
The daily chart for Darden
The daily chart for Darden clearly shows a 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 and a semiannual pivot at $115.63, which will expire on June 28. The close of $121.47 on March 29 was another input to my analytics and resulted in a quarterly pivot at $118.89, which is a magnet today. The May 31 close of $116.32 was the latest monthly input, and the value level for June is $112.30. I show a weekly risky level at $122.69.
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 pushed the stock to the all-time high, with the 50-day and 200-day simple moving averages now at $118.74 and $112.02, respectively.
The weekly chart for Darden
The weekly chart for Darden will be negative given a close this week below its five-week modified moving average at $118.89. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $84.87. The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 65.06 this week, down from 69.13 on June 14.
Trading strategy: Buy Darden stock on weakness to its 200-day simple moving average at $112.02, as its semiannual and monthly value levels at $115.63 and $112.30, respectively, will expire on June 28. Reduce holdings on strength to this week's risky level at $122.69.
How to use my value levels and risky levels: 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 semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of each month. The quarterly level was changed at the end of March.
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.
The close on June 28 is the second most important for 2019. This close will be an input to my proprietary analytics and will generate new weekly, monthly, quarterly, and semiannual levels.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.