Texas Roadhouse (TXRH) got hit hard yesterday as if it got thrown from a bucking bull in a rodeo. Bam! Prices are holding on in a tight range today.
Let's check our indicators to see what may lie ahead for this restaurant chain.
In this one-year daily chart of TXRH, above, we can see some wide swings up and down even before yesterday's sharp gap lower. There are a couple of interesting things to point out before the gap. One is the fact that the 50-day moving average line was flat before the gap. Now look at the volume of trading from the October low to the December high -- not all that impressive. Now check the On-Balance-Volume (OBV) line, which looks like it has been weakening since last June. This multimonth decline in the OBV line suggests there has been liquidation by holders of TXRH for months. This is not a good setup for the bulls.
In the lower panel is the trend-following Moving Average Convergence Divergence (MACD) oscillator, which declined below the zero line for an outright sell signal in January. All in all, TXRH was on shaky technical ground before the gap yesterday.
In this weekly chart of TXRH, above, we can see prices are below the rising 40-week moving average line. The weekly OBV line has been declining since June, like the daily chart. The MACD oscillator has rolled over to a fresh liquidate-longs sell signal.
Bottom line: TXRH has some chart support in the $40-$38 area. This support may or may not hold and prices could weaken to the $34 area. Hard to tell at this juncture, but with the OBV line in a decline since June, I would prefer to go with a more bearish outlook for the weeks ahead.