Domino's stock originally opened significantly lower, all the way down at $230.50 -- a loss of almost 5% from the prior session's close -- after reporting its third-quarter earnings. News of a $1 billion buyback certainly helped improve the mood.
As a result of the bounce, Domino's Pizza held a notable level of multi-year range support. It now sits just below a significant level near $250, with a confluence of potential resistance just overhead.
That presents both bad news and opportunity for investors. On the one hand, if resistance keeps Domino's stock in check, selling pressure could ensue. On the other hand, though, if DPZ stock is able to reclaim some of these levels, then more gains could be on the table.
Let's look at the charts.
Trading Domino's Pizza Stock
Above is a look at the weekly chart for Domino's Pizza stock, which highlights just how important the $230 level has been over the past few years. On the upside, $290 to $300 has been resistance.
It would have certainly helped if Domino's reported better headline results. Earnings of $2.05 per share missed estimates by 3 cents, while revenue of $820.81 million missed expectations by almost $6 million, growing just 4.4% year-over-year. Same-store sales missed expectations as well, although margins did improve.
However, the fact that DPZ is rallying in the face of a top- and bottom-line miss and a notable market-wide selloff is certainly intriguing. Even its peers, like Papa John's (PZZA) - Get Papa John's International, Inc. Report and Yum! Brands (YUM) - Get Yum! Brands, Inc. Report are down on the day, falling 4.2% and 1% on Tuesday, respectively.
This impressive price action is one of the reasons Domino's is Real Money's Stock of the Day.
If resistance holds steady, though, Tuesday's rally won't really matter all that much.
Bulls now want to see DPZ stock reclaim the $250 mark. Not only has this level been resistance over the past few months, but it's also where the 100-week moving average and the 61.8% retracement come into play.
If DPZ stock clears $250, that puts $260 on the table. Should the stock hurdle the latter, it will be over all of its major daily and weekly moving averages, as well as the 50% and 61.8% retracements. It's exactly what bulls need to see happen if they want the stock to eventually retest range resistance above $290.
On the downside, use caution if Domino's Pizza stock loses $237.50, which is the 78.6% retracement. Below that mark also means the stock will have lost its 50-day and 20-day moving averages, currently near $240 and $243, respectively.
Keep it simple: Above $250 is constructive and above $260 is bullish. Below $237.50 warrants caution and below range support at $230 is bearish.
This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.