Domino's Ready to Deliver

Locating stocks early in their trends is the key to big returns. Once a stock has shifted direction, the challenge is to find a place to get on board. That's usually best achieved through identifiable patterns on the chart, as those patterns can offer both entry and exit criteria for the trade. The success rate can be even better when those patterns are building on top of previous patterns.

Right now, Domino's Pizza (NYSE: DPZ) is doing just that. The stock rallied big from January through April, then corrected substantially into the first of July. Since then, DPZ has bounced back and stabilized for two months, putting an end to the correction. It now appears poised for another rally.

An important short-term trend line was crossed last week, as the declining resistance from the July 27th high was keeping prices subdued. That allowed the stock to churn for a few weeks and digest the July rebound in a healthy manner. Support was found in the $12.45 area during this shallow pullback, and was able to hold on a closing basis throughout the rest phase.

DPZ turned higher last Wednesday, ending the day right at the trend line. A breakout occurred on Thursday with a solid push higher, and follow through was found on Friday with additional strength coming into the name.

Since then, Friday's high has been respected, but price is sitting just shy of that level. The stock is basing here after last week's rally, creating a small bull flag pattern above the broken downtrend line. Multiple patterns tend to add validity to the price action, and I think that's what we're seeing here. The July high also isn't far away, so a secondary breakout could be imminent.

I'm watching DPZ for a breakout through the $14 level, as a push beyond that resistance should free up the stock to move higher. A gap from early-May remains unfilled, and is a likely first target for this stock if the breakout occurs.

Here's a closer look at the chart of DPZ. Last week's trend line break is easy to spot, as is the key $14 resistance just above where the stock is currently consolidating: