Dunkin' Brands (DNKN) has been consolidating in a rising triangle pattern above long-term support for the last two months. A successful pattern breakout projects a 10% move higher.
The stock pulled back sharply after making a high in July, moving back down to the $40 area, which in 2014 acted as long-term support. After two months of consolidation above this level, the relative strength index on the weekly chart has crossed back above its 21-period signal average, and the money flow index, a volume-weighted measure of relative strength, moved out of an oversold condition. These indications reflect improving price and money flow momentum on an intermediate-term timeframe.
On the daily chart, the recent consolidation can be seen as a rising triangle pattern below horizontal resistance in the $43 area. Last week the stock price was back over its 50-day moving average for the first time since early August, and this week it crossed above the five month downtrend line. The relative strength index is tracking higher above the rising signal line and its centerline. Daily moving average convergence/divergence is overlaid on a weekly histogram of the oscillator and is crossing above its centerline on both timeframes. These are synchronized readings of positive price and trend momentum. Accumulation/distribution made a bullish cross above its signal average, and the money flow index, a 21-period average of the A/D line, is above both its signal and centerlines. The stock has been experiencing accumulation during the progression of this consolidation phase.
Dunkin' Brands is a buy after an upper candle close above triangle resistance, using a trailing percentage stop under the 50-day moving average. The pattern projects a target price measured by adding the height of the triangle to the breakout level, which would close the October gap for a 10% gain in the stock price.