ASX Watch: Buyer Beware of Domino’s Pizza

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Today, we’re turning up the heat.

No, I’m not talking about burning any pizzas today.

But while we’re on the topic of pizza, some investors are feeling the pain as Domino’s Pizza Enterprises Limited [ASX:DMP] continues to slide.

It could get worse.

There’s one factor that could cause Domino’s Pizza to slide even further.

We’re going to cover this urgently for you today. But first, a bit of background info about the company…

 Who is Domino’s Pizza?

Domino’s Pizza Enterprises is the largest pizza chain in Australia. It is also the largest franchisee for the Domino’s Pizza brand in the world, with over 2,400 stores across multiple continents.

Domino’s Pizza fell 5% on Monday after Morgan Stanley lowered its forecasts for Domino’s profitability.

It also appears that Morgan Stanley thinks DMP is not going to meet its growth target of 10-20% for the year ending June 30, 2019.

I am a technical analyst. While I love to read about a company’s fundamentals, I look for technical indicators to gauge any stock.

Right now, DMP is at a critical juncture that could either turn the stock around or set off a wave of selling.

What’s next for DMP?

Here is DMP’s weekly chart.

Source: Optuma

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I have marked a yellow rectangle on the left-hand side. This is what’s known as accumulation and is part of the original move higher.

You can also see four blue arrows on the right-hand side.

The black line above these arrows is referred to as a support level. So far, buyers have not allowed Domino’s to fall below this level. That’s why you need to watch this closely.

I suspect there are a lot of individual stop losses just underneath. (In case you’re not aware, this is a defensive measure traders use to exit a position if a stock starts falling.)

Here’s the point: A fall below the support level could trigger a wave of selling as these stop losses start getting hit. 

So from a technical perspective, you shouldn’t go looking to buy the dip here. 

This article is not a recommendation to buy or sell DMP. It’s an update only. I hope you found it helpful.

Until next time,

Jim Rickards Signature

Jonathan Evans,
Analyst, Profit Watch

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