Brinker International Inc. (EAT) declined sharply Tuesday as traders and investors reacted to a drop in its fourth-quarter restaurant-level operating margins. The charts have weakened and Jim Cramer mentioned the stock during his no huddle offense segment of his popular Mad Money program last night. Let's check the charts and indicators.
In this daily bar chart, below, we can see a number of bearish signals. Prices have been trading sideways between $42 on the downside and around $52-$54 on the upside. I can see many more rally failures in the past eight months than bottoms. This is the first sign of weakness.
Prices have closed below the declining 50-day moving average line and they just gapped below the rising 200-day moving average line on heavy volume. The daily On-Balance-Volume (OBV) line has been weakening since early December, telling me that sellers of EAT have been more aggressive over the past two months. The Moving Average Convergence Divergence (MACD) oscillator has rolled over at the zero line for an outright sell signal.
In this weekly bar chart of EAT, below, we can see that prices are likely to close well below the cresting 40-week moving average line. The weekly OBV line shows a decline from July and the MACD oscillator has been in a take-profits sell mode since the beginning of August.
In this weekly Point and Figure chart of EAT, below, we can see a downside price target in the $33-$32 area. A trade at $40.18 will weaken the picture.
Bottom line strategy: EAT closed weak Tuesday and carryover selling is likely, in my opinion. A close below $42 on heavy volume is likely to precipitate further declines and a retest of the February lows in the $34-$32 area.