Domino's Is Bringing the Heat

Ed Ponsi

Domino's Pizza has been a piping hot stock this year, gaining 40% in just over six months. Will investors get burned if they take a bite of this global pizza giant? We'll go to the charts to find out. 

As measured by retail sales, Domino's Pizza, symbol DPZ on the New York Stock Exchange, is the world's largest pizza company. Domino's is scheduled to report earnings on Thursday morning before the market opens. Analysts believe the company earned $2.24 per share, and brought in $861 million in revenue.

Can Domino's beat those numbers? Right now, Domino's chart is leaving some pretty solid clues that earnings and revenue will be higher than anticipated. 

Domino's has just broken out of a three-month long consolidation, shaded in yellow. From April until early July, the stock bounced back and forth between $350 and $390. 

DPZ

On Friday, the stock broke out of that pattern, at point A on the chart, and on Monday July 13th, Domino's broke through $400 for the first time, at point B. 

At point C, we see the stock's relative strength indicator, or RSI, According to this indicator, Domino's is now entering overbought territory. 

However, just because a stock is overbought, that doesn't mean it's time to sell. Stocks can stay in overbought territory for months at a time. In fact, in a bull market like we're seeing now, overbought stocks tend to become more overbought. 

Case in point - at point D, shares of Tesla reached overbought territory on July 1st. On that day, the stock closed above $1100 per share. 

TSLA

By July 13th, point E, Tesla nearly touched $1800 per share. The stock gained $700 per share after it reached overbought territory. That's a good example of an overbought stock becoming more overbought. 

The question we're asking now is, will Domino's stock become more overbought? The chart is clearly telling us that the market has high expectations. On Thursday morning, we'll find out if those expectations are high enough.