004. Piggish Play - Long Dominos Pizza (DPZ) on 6/1/2020DPZ is a volcano set to erupt. It has been consolidating in this defined purple range since April 13th, after a massive gap up on an earnings crush. With institutions like the FED and other funds (who got the green light from the FED) are fighting popular opinion that the markets should be in a state of retracement. The reason why taking a long position in either equity or options is wise is because Dominoes can thrive under the two scenarios that could arise in the next month:
1) The infected count increases to the point of a second quarantine and DPZ sees further increased revenue
2) Everything is contained and life moves on along with a bullish market
Technically speaking, the chart is primed for liftoff. All of the key EMAs are aligned for takeoff and a broad base has formed after two months of tight consolidation. The orange line splitting the middle of the chart represents the new bullish price channel, should the 390 line break + hold tomorrow. Such a channel suggests that a 50 point move is more likely than not over the next month. Therefore, entering a long position in equity and setting a looser stop is the way to play this like a fiddle.
Trade Overview:
- If DPZ breaks 390 tomorrow, enter a long position above 390 for a price target of 340. Sell above 330 before the end of the month, if it cannot break 340 by then.
- There are blue skies above 390 (no historical resistance), so there's always a chance that it really moves closer to 500 in the coming weeks. I am not 100% psychic, so it is difficult to peg a specific price target, but I think that 340 is the most reasonable place to take at least some profits.
- Set a loose sell stop at 368.
- The reason for the loose stop is that it is very unlikely it pulls back significantly. If a tight stop is set, you will get shaken out before the next leg up and you will be either sad, chasing or both.
- If DPZ cannot break 390 due to an extreme market-wide move down next week, then wait for an alternative entry at 350. The odds that it closes below 350 over the next 6 months are astronomically low.
NYSE:DPZ
