Domino's in a Nice Setup

 | Oct 18, 2013 | 7:30 AM EDT  | Comments
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dpz

I'd like to make a case for the buy side in Domino's Pizza (DPZ). It is a Fibonacci price cluster setup. The definition of a price cluster is the coincidence of at least three key Fibonacci price relationships that come together within a relatively tight range.

In this case, I see the coincidence of at least seven price relationships between $64.14 and $65.00. The relationships include three retracements of prior swings, two extensions and two 100% (symmetry) projections of prior declines. You can see this cluster illustrated on the chart below. So far, price is holding above this zone, with the recent low made on Oct. 15 at $64.89.

Besides the price cluster decision, this chart illustrates the fact that we are currently above both the 200- and 50-day simple moving averages. Those averages support a bullish strategy. If price continues to hold above this key price cluster of support, Target 1 comes in at the $71.29 area, and Target 2 comes in around $73.03. Keep in mind, however, that if we make a lower low into the zone, the targets will need to be recalculated.

On this same chart I have also illustrated what I call a "hurdle." This would be an area of potential resistance on the way up. It comes in at $67.45-$68.34. If price rallies up into this area, I typically suggest that you trail up your stops on the trade, as this is an area from which it can fail.

Bottom line, I'm taking my buy triggers in DPZ as long we continue to hold above this key support zone. I will consider myself wrong if we break this same key zone.

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