Sector Watch: Restaurants $DIN $EAT $PLAY $PFGC

Here is what our premium members received on November 29th when we highlighted the Restaurant Sector. Since, EAT up 11% DIN up 10%, PLAY up 5% and PFGC breaking out and now up over 5%. Come on board and take advantage of early discounted pricing of $69 per month and get stocks like this on your radar.

With a possible sector rotation underway in the markets, it appears money is working its way into Financials, Industrials and some Consumer Cyclicals. Under that premise, I thought we may start looking at a few of the sub sectors within the groups. Tonight we will take a look at the restaurant group where a couple opportunities may exist. This group has been beaten up for the last several months but there may be some trend transition patterns in the works. Lets take a look.

Lets  start with the sector chart via Morningstar. The sector has been working off an advance that began in November of 2016 and ran thru May of 2017 before topping out on June 2nd. This current 6 month consolidation looks like it has run its course as the sector appears to be breaking out. This breakout began on Tuesday as price broke thru the top of an ascending triangle, today we saw a bullish follow thru that could rally price back up to the high set in early June. Should this occur, it remains to be seen how much resistance that old high may have, but at a minimum there may be some swing gains to be had in the meantime.

DIN- Over the last year Dineequity Inc., the owners of Applebee’s and IHOP, saw its share price cut in half with the stock bottoming in late summer around $37.00 while forming a bullish looking saucer bottom. The shorter term moving averages crossed over in late September and quickly thereafter price started a steady advance that ran thru October and added around 20% to the stock price. A pullback ensued as the calendar turned to November but a mixed bag of earnings on the 9th squashed what looked to be a possible trigger for a long trade. The stock has digested this earnings news and appears to be attempting a new rally. A high risk entry set up today with a close above the $45.00 level, a close above the 200 day MA may set up a more stable advance, but at that point, some consolidation may be required before the stock can take over the $50 mark.

EAT– Brinker Int., owner of the Chili’s Bar and Grill and Maggiano’s brands, has a chart pattern identical to DIN. The stock began a rally on November 1st that also saw a near 20% advance in price. A quick five day pullback has now yielded to an advance that triggered a buy in the $34.50 to $35.25 area. The initial set up has completed, but if price backs up modestly into the $35.50 -$36.00 area, it may present another opportunity to go long.

SHAK- Shares of Shake Shack (say that five times fast) came public in early 2015 and doubled in less than four months. The stock promptly went into a sharp decline giving back all those gains and then some in the ensuing seven months. The stock has been working off this selling by channeling in a base between $30 and $40 for almost two years. The weekly chart below shows the stock trying to poke above that resistance line and induce a breakout. One benefit that this stock has that some of the others lack is a string of solid positive quarterly earnings (shown at the top of the chart in green). The success of this breakout, should it fully commence, may lie in how much of the overhead supply of the stock was worked off over the last two years.

PLAY- The stock of David and Buster’s mirrors that of DIN and EAT except for the subtle difference that the rise in price of the bottom has not been as dramatic, only about 12%. The stock has triggered a buy today as it has appeared to resume its advance after a three day pullback. The move has pushed the stock back up over its 50 day Exponential Moving Average, however the stock will face a minor hurdle near $54-$55 where the stock gapped down in early September.

PFGC- Someone has to provide the food for these restaurants and one of the major players is Performance Food Group. The stock reemerged as a public company in late 2015 at about $19.00. It proceeded to advance about 40% before going into a correction and forming a cup and handle pattern. This high handle has formed between $25 and $29 and has run now for seven months that now gives the look of a base on top of base pattern as well. A weekly chart also shows a solid trend line that has supported price dating back to last fall. The stock closed above resistance today staging a breakout on volume about twice the average on a daily basis providing a good entry price near $30.00 for traders looking to get long.

SUMMARY-  Transitional patterns can be challenging and offer up false moves at times, but when successful these patterns offer traders an opportunity to get into moves early before most other traders recognize them.

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