Darden Restaurants: Take Some Money off the Olive Garden Four-Top

 | May 10, 2017 | 9:57 AM EDT
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Darden Restaurants (DRI) has made a big upside run in the past six months but the pace of the advance has begun to slow on a daily and weekly basis. The prudent move now may be to take some money off the table -- not the tips but possibly your original principal.

Sometimes it is good to play with the house's money. With an upside target from our Point and Figure chart reached this would be a good time to take profits or trim your position. The trend is still pointed up but our favorite leading indicator -- momentum -- shows a bearish divergence on the daily and the weekly chart.

In this daily bar chart, above, we can see that DRI broke out on the upside from a four-month line formation in November. There is a bullish golden cross of the 50-day moving average line and the 200-day moving average line. Now DRI is above the rising 50-day and maybe too far above the rising 200-day line. The volume pattern is pretty neutral looking except for spikes in July, October and late March.

The On-Balance-Volume (OBV) line moved up strongly in October and November signaling aggressive buying but then grinds slightly higher the next five months. Prices have made new highs the past three to four weeks but the OBV line has not.

In the lower panel of this chart is the 12-day momentum study. As prices make higher highs in April and May the momentum study shows lower highs for a bearish divergence. A bearish divergence is not a run out and sell signal but it is a warning that the pace of the advance has slowed. Momentum tends to peak before prices do.

In this three-year weekly chart of DRI, above, we can see that prices are above the rising 40-week moving average line. Volume is uneven but the weekly OBV line has been rising since June/July. In the bottom panel is the 12-week momentum study, which shows a bearish divergence between the higher highs in price from December to May and the lower momentum readings in the same period of time.

In this Point and Figure chart of DRI, above, using percentage swings instead of just fixed dollar amount swings, shows that a price target of $84.48 was reached. From here DRI might have a sideways continuation pattern or have a reversal to the downside.

Bottom line: With a price target reached and price momentum waning on two timeframes I think the best course of action for traders and investors is to take profits on DRI.

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