We last called ahead for a table at Darden Restaurants (DRI) in early May, when we told the front of the house, "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."
With 20/20 hindsight, we can see that price topped out in June around $93 and declined to the $78-$76 area by September. With a correction behind us, the question now is how do the charts and indicators look, heading into year-end? Let's check the reservation book.
In this daily bar chart of DRI, above, we can see prices have traded sideways the past two to three months. DRI rallied above the 50-day moving average line in late October, and has been testing the underside of the rising 200-day moving average line. There was a surge in volume in late September, but otherwise the volume has been declining the past six weeks.
The movement of the On-Balance-Volume (OBV) line has been more encouraging than the volume, in that the OBV line only had a small decline from July to September, and has been rising since.
Basically, the shallow decline in the OBV line suggests that sellers were not that aggressive. The trend-following Moving Average Convergence Divergence (MACD) oscillator moved above the zero line last month for an outright go long signal.
In this weekly bar chart of DRI, above, we can see that prices are trading just below the rising 40-week moving average line. The weekly OBV line shows more of a decline than the daily line, and only a minor rise in recent weeks.
The weekly MACD oscillator in the bottom panel shows that the two moving averages that make up this indicator have narrowed. If prices rally, we could see a bullish crossover for this indicator.
In this Point and Figure chart of DRI, above, we can see a recent rally and pullback (a column of Xs followed by a shorter column of Os). There is a potential upside price target of $97 indicated. A decline to $78.26 will weaken the chart.
Bottom line: the price action and indicators on DRI are mixed, but we have a place to position DRI from the long side with a reasonable risk level. A decline below $78 would tell us that prices are probably headed lower. Aggressive traders could probe the long side here, but only with a stop loss order below $78.