Darden Restaurants (DRI) owns brands such as Olive Garden, LongHorn Steakhouse, Capital Grille and others. The company reported a top and bottom-line earnings beat Thursday morning. As the economy slips in the months ahead, will consumers continue to eat out?
Let's check out the charts and indicators for any subtle clues.
In the daily bar chart of DRI, below, I can see that share prices made a low in June/July and then took off to the upside. The stock has rallied when the broader market averages have been weak and that is more impressive. DRI trades above the rising 50-day moving average line and above the rising 200-day line.
The On-Balance-Volume (OBV) line shows a rise from June as traders have been more aggressive buyers with heavier trading volume seen on days when prices have closed higher. The 12-day price momentum indicator in the lower panel shows a lower high from January to March even though prices made higher highs. This difference is a bearish divergence and tells me that the pace of the rally has slowed. This can at times foreshadow a price correction.
In the weekly Japanese candlestick chart of DRI, below, I see a mixed picture. The shares made a high around the middle of 2021 followed by a correction to the downside. DRI has rallied back towards the prior high but the indicators are not confirming the gains.
The weekly OBV line has been in decline since September 2021. The slope of the 40-week moving average line is positive. The 12-week price momentum study shows weakening momentum from November to March. This is a bearish divergence when compared to the price action.
In this daily Point and Figure chart of DRI, below, I can see an upside price target in the $179 area. A trade at $142 will weaken this picture.
In this weekly Point and Figure chart of DRI, below, I see a similar picture and price target as the daily chart -- $179.
Bottom-line strategy: The charts of DRI are pointed upwards but some of the indicators I have come to depend on are not confirming the gains. Traders who may be long DRI should tighten sell stops. Pretty much everything I read about the U.S. economy suggests that things will slow in the weeks and months ahead. In that kind of environment I have trouble believing that dining out won't suffer.
