The American multinational hospitality industry company that owns Chili’s and Maggiano’s Little Italy restaurant chains, Brinker International, Inc. (NYSE: EAT) seems to be getting ready for a price bump as per the latest charts.
Bullish Move – Chart Indications
#1 Falling Wedge Pattern Breakout: As you can see from the daily chart, the stock was forming a falling wedge pattern for the past several months. This pattern is marked as pink color lines. A falling wedge is a bullish pattern and a breakout from it implies that the stock may move higher in the short term. Currently, the stock has broken out of the falling wedge pattern, indicating possible bullishness.
Daily Chart – EAT
#2 Price above MAs: The price is currently above both the short-term moving average of 50-day SMA and the longer-term moving average of 200-day SMA. This usually implies a possible bullish bias for the stock.
This indicates possible bullishness.
#4 MACD above Signal Line: In the daily chart, the MACD (light blue color) is currently above the MACD signal line (orange color).
This indicates a possible bullish setup.
#5 IH&S Pattern: The stock’s weekly chart shows that the stock has been forming an Inverted Head and Shoulders pattern. This is marked in the chart in orange color. This is a possible sign of an upcoming bullish move.
Weekly Chart – EAT
#6 %K above %D Line: The weekly chart shows that the %K line (light blue color) is currently above the %D line (orange color) in stochastic. When this happens, it usually indicates a bullish setup.
#7 Bullish MACD: The MACD line is above the signal line in the weekly chart as well, indicating a possible bullish bias.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can buy half the intended quantity of shares of EAT at the current price of $44.20 and the rest if the stock closes above $51.50.
TP: Our target prices are $60 and $70 in the next 4-6 months.
SL: To limit risk, place a stop loss below $39.70 (for entry near $44.20) and $45.90 (for entry near $51.50). Note that the stop loss is on a closing basis.
Our target potential upside is 17% to 58% in the next 4-6 months.
- Entry near $44.20: For a risk of $4.50, our first target reward is $15.80 and second target reward is $25.80. This is a nearly 1:4 and 1:6 risk-reward trade.
- Entry near $51.50: For a risk of $5.60, our first target reward is $8.50 and second target reward is $18.50. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers 2x to 6x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge pattern with high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
Happy Trading!
Tara
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