Domino's Pizza, Inc. (DPZ) stock rallied above 2018 resistance at $300 in February, but the uptick failed in a 28% downdraft during the first quarter's pandemic-driven swoon. It has now recovered and is nearing a secondary breakout that could lift the stock well above $500 in coming months. Major rivals could add to gains as well, with the virus super-charging American appetites for the classic tomato pie and all its wonderful variations.
The company just noted a "material increase" in U.S. same-store sales in the fifth to eighth weeks of the second quarter compared to the first four weeks, with stay-at-home orders lifting all across the United States and Europe. Total sales have risen 14% so far this quarter, with consumer behavior changing at a rapid pace. Many stores remain closed across the two continents, raising the potential for even stronger sales increases into the end of June.
The May 12 addition to the S&P 500 index triggered heavy buying activity that instantly erased technical damage incurred during the first quarter, lifting accumulation readings to all-time highs. This bodes well for the upside, with a steady tailwind after the stock clears February resistance in the $380s. Domino's stock is now trading about 20 points under that barrier, but optimism stoked by this morning's bullish metrics from Papa John International, Inc. (PZZA) could underpin short-term buying power.
DPZ Long-Term Chart (2004 – 2020)
Domino's Pizza came public at $7.61 in July 2004 and entered an uptrend that posted a graceful series of higher highs and higher lows into April 2007, when it topped out at $19.24. A July breakout attempt failed, giving way to an orderly decline that accelerated into a vertical freefall during the 2008 economic collapse. The sell-off posted an all-time low at $2.42 in November 2008, ahead of a recovery wave that took two and a half years to complete a round trip into the prior high.
An immediate breakout attracted widespread buying interest, easing quickly into a rising channel that contained price action into 2014. The uptrend then entered a stair-step pattern, with increasingly energetic rally waves interspersed with multi-month corrections that shook out weak hands. The uptick that started in November 2017 was particularly vigorous, adding almost 140 points in just nine months.
The rally topped out above $300 in August 2018, yielding a volatile decline that found support at $221, ahead of a 2019 bounce that reached resistance in December. The February 2020 breakout lasted for one session before turning tail in a vertical slide that filled a gap of 60-plus points and violated new support before ending at $275. The stock bounced through April, reversing once again right after posting an all-time high just six points above the February peak.
DPZ Short-Term Chart (2018 – 2020)
The company beat top- and bottom-line estimates in February's fourth quarter 2019 earnings report, triggering a huge breakout gap, but buying interest dried up immediately. The subsequent downtick filled the gap on March 12, but the stock continued to trend lower, finding support 25 points below that level a few days later. The subsequent bounce unfolded in two waves, reinstating the breakout before nosing above the February high on April 23. Price action in the past month has been constructive, potentially carving the handle in a three-month cup and handle pattern.
The on-balance volume (OBV) accumulation-distribution indicator has matched or exceeded bullish price development since the August 2018 high, breaking out three months ahead of price in November 2019. The May 11 S&P 500 news generated a rally day that posted more than six times average daily volume, triggering a fresh OBV breakout that has established a bullish divergence, predicting that price will soon follow.
The Bottom Line
Domino's Pizza stock has carved a three-month breakout pattern at February's bull market high, setting the stage for an uptrend that could eventually reach $500.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.