ONEX BOLIVIA: Chart of the Week: Consumers Still Eating Out

January 27, 2010

Consumers Are Still Eating Out

Commentary: One sector that hasn't been getting much press despite performing well over the past year is the restaurants group. Some of these stocks were hammered as the bear market began, but they have been able to retrace large portions of their declines. Some of these companies are surprisingly near all-time highs again, despite high unemployment rates that should leave consumers with less discretionary income.

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Buffalo Wild Wings, Inc. (Nasdaq:BWLD), for instance, recently tagged a new all-time high after retracing its entire bear market decline in the past year. It had been consolidating near term from September through January before finally surging in mid January. While it tagged those all-time highs, it did reverse pretty quickly so traders should be careful and watch as it pulls back to consolidate the breakout. A pause on declining volume near $44-45 would be healthy and could serve as a launching pad for a breakout continuation.

Source: StockCharts.com

McDonald's Corp. (NYSE:MCD) is another stock near all-time highs. MCD barely suffered through the bear market and stepping back, it is now clear that this stock has really been in a two-and-a-half year consolidation. MCD is trading toward the top of its established range and is at a critical area. A break above the long-term base would have very bullish implications. A failure in this area would imply a return trip to the lower end of the range and continued consolidation.

Source: StockCharts.com

While PF Chang's China Bistro Inc. (Nasdaq:PFCB) is not close to all-time highs like MCD and BWLD, it did recently clear a base that had been in the works for several months. PFCB broke out of this base in December, but quickly reversed back into the base a few weeks later. It looked like the breakout had failed, but in January, PFCB surged to new recovery highs, confirming its move above the base. PFCB is currently pulling back and has managed to hold above its rising 20-day moving average despite weakness in the general markets. The $37 area, which was the breakout area, is a level to watch for possible support. The 50-day moving average and prior low near $35.50 are other areas of high importance. (For more, check out The Anatomy Of Trading Breakouts.)

Source: StockCharts.com

Domino's Pizza, Inc. (NYSE:DPZ) is a stock that suffered greatly during the heart of the bear market decline. DPZ dropped from over $20 a share to the $2-$3 range. However, DPZ bottomed well ahead of the general markets and had erased much of its decline by March of 2009. It was in a long consolidation for most of 2009 and finally broke out recently, as it cleared the base on a surge in volume. DPZ is in the process of forming a bull flag, which often results in a continuation move higher. The breakout area near $9.40 is the area to watch in case DPZ weakens; the recent high near $11.70 is the level to keep an eye on on the upside.

Source: StockCharts.com

Bottom Line
There has been a lot of focus on financials, technology and commodities over the past few months, and with good reason. However, this group of stocks has quietly been performing well and should be on everyone's watch list. The American consumer has shown a willingness to continue spending and it's doubtful this trend will end anytime soon.

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Have a Great Day!

By Joey Fundora

Joey Fundora is an independent trader located in South Florida. Joey focuses on using technical analysis techniques to uncover supply and demand imbalances in equities. To see more of his work, visit his site on Stock Chart Analysis.
At the time of writing Joey Fundora did not own shares in any of the companies mentioned in this article.

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