Tuesday night as part of his Mad Money program, Jim Cramer spoke with Ritch Allison, CEO of Domino's Pizza (DPZ) , which saw its share price suffer after the company reported its latest earnings numbers. Allison said he's very happy with this quarter's results, which included 10% revenue growth on a constant currency basis. He was also pleased with the same-store sales growth in the U.S.
Number crunching and year-over-year comparisons are good but I like to do my channel checks with the charts and indicators.
In the daily bar chart of DPZ, below, we can see that prices have been rolling over the past five months. Rolling over when a stock is trading around $30 is probably not much of an issue, in my opinion, but rolling over when a stock is trading around $300 after a 10-year advance is an entirely different issue.
Prices are trading below the declining 50-day moving average line and are just a fraction away from testing the rising 200-day moving average line. The last test of the 200-day line was back in February when DPZ was trading around $200.
The daily On-Balance-Volume (OBV) shows a rolling-over-like pattern from late June and it matches the price action. An OBV line that is making a rounding top tells me that sellers are being more aggressive but they are taking their time in reducing their positions.
The Moving Average Convergence Divergence (MACD) oscillator shows a peak in June and a lower peak in early September. The oscillator is below the zero line this month for an outright sell signal.
In the weekly bar chart of DPZ, below, we can see that prices have tripled in the last three years. Pretty amazing for a pizza company. Prices are just barely above the rising 40-week moving average line. A break of this indicator is likely.
The weekly OBV line has been stalled the last four to five months and this is a bearish divergence when compared to the price action. The weekly MACD oscillator crossed to the downside in July for a take profits sell signal.
In this Point and Figure chart of DPZ, below, we can see a relatively nearby downside price target of $243.50 for DPZ but if that happens it will mean that the 40-week moving average line has been broken.
Bottom-line strategy: The charts and indicators of DPZ are bearish with a capital "B." I think a major top reversal pattern has been made and the first downside price target I have is $210. The Point and Figure target of $243 is likely to just be a pause in the decline.