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Restaurant operator, Brinker International (NYSE: EAT), owner of Chili's Grill & Bar and Maggiano's Little Italy chains, recently hit fresh all-time highs after staging a crucial multi-year breakout in March. Given its momentum, the stock looks poised for further upside in coming weeks, barring any significant weakness in the broader market.
If we look at a longer-term chart comparing EAT to SPDR S&P 500 (NYSE: SPY), we see that the stock's rally off the 2008/2009 lows closely resembles that of the broader stock market. More specifically, should the S&P 500 break above 1,600 in the coming days, then EAT's chances of pushing past its recent all-time highs would increase.
EAT bottomed in late 2008 (as opposed to early 2009 for the S&P 500). Its initial sharp rally off the bottom ended in April 2009, and then took almost 20 months to consolidate before ultimately breaking higher again. Like many a good breakout, the stock's rally past the 2009 reaction highs in December 2010 was retested some nine months later with the summer/early autumn 2011 general market malaise.
After stabilizing around the $20 mark again, the stock pushed higher and continued to trade in technical perfection right through today.
As the stock pushed higher into September 2012, it became increasingly extended. The 75% rally in the prior 12 months led to a correction of exactly 50%, which is a critical Fibonacci retracement that I often watch.
By November 2012, EAT had finished this 50% retracement and rallied about 38% over the course of the following four months. The stock's recent top in April around $39 and change also perfectly coincided with a 23.6% Fibonacci extension of the September 2011-September 2012 rally. Readers of my stock trading setups often hear me target price levels with a 23.6% Fibonacci extension.
This latest rally off the November 2012 lows pushed the stock past the 2012 highs in March of this year, which also lined up with the stock's previous all-time high from February 2007, around the $36 level. The push past $36 is significant as the level had not been overcome since 2007, but it also raises the question of whether the move was at least in part aided by short sellers getting stopped out of their positions.
Whatever the case may be, the push past $36 accelerated the stock higher to the tune of 9% in two and a half weeks of trading, which put further momentum and a slew of trend followers behind it.
Coming back to a multi-year chart, note that with the stock's push past $36 it also quickly ran into the upper end of the longer-term uptrending channel. By doing so, the stock is likely extended in the longer-term time frame.
However, should EAT move past the April highs and close above $39 on a daily basis, the next upside target would be around $41, for a 5% gain that would likely occur rather quickly.
Recommended Trade Setup:
-- Buy EAT on a daily close at or above $39-- Set stop-loss at $37.80-- Set initial price target at $41 for a potential 5% gain in two weeks
As a die-hard value investor, I struggled with its valuation in the past, but now I'm ready to pull the trigger.
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