Restaurant Stocks Are Leaving a Bad Taste on Their Charts

Circumstances are conspiring against some of the most prominent names in the fast-casual restaurant industry.

Inflationary pressures stemming from rising costs of both labor and food are eating away at profit margins. Supply chain issues are leaving key ingredients in limited supply. These challenges are exacerbated by a shortage of available workers, leaving customers feeling frustrated.

Inflation, the supply chain and the employee shortage were once considered short-term issues. However, all three have been dragging on for months. Now that earnings season is upon us, we could begin to see these issues impacting the bottom lines of some big names in the restaurant industry.

While the impact of these issues isn't yet fully quantifiable, the damage is already visible on the charts. Let's take a look at the charts of three big names in the fast-casual sector.

Chipotle Mexican Grill

Chipotle Mexican Grill (CMG) has been a stellar performer over the past four years, posting gains of 49.39% in 2018, 93.87% in 2019, 65.65% in 2020 and 26.07% in 2021.

However, the restaurant juggernaut will be hard-pressed to duplicate that performance in 2022. Chipotle already has lost 16% year to date, and if its chart is any indication the stock is about to lose more ground.

Chipotle closed at a six-month low on Wednesday. The stock is trading beneath its bullish trendline (black dotted line), its 50-day moving average (blue) and its 200-day moving average (red).

The stock recently formed a pattern of lower highs (LH) and lower lows (LL), indicating the start of a bearish trend. In addition, Chipotle's MACD (moving average convergence divergence) indicator is trending lower. Chipotle's next major support comes in at $1,320.

Source of charts: TradeStation

Domino's Pizza

Domino's Pizza (DPZ) has formed a large double top pattern (curved black lines). This ominous formation suggests a possible drop to below $400. The stock's recent pullback occurred on above-average volume (shaded light blue), a negative sign.

Domino's is trading below its 200-day moving average (red) for the first time since April of last year. The pizza giant has now closed beneath that key indicator for three consecutive days (shaded yellow).

Starbucks

Starbucks (SBUX) has plunged 17% since the start of the year. On Wednesday, the stock reached its lowest level since January of last year. The Seattle-based coffee retailer fell after the formation of a symmetrical triangle pattern (black dotted lines).

Starbucks is currently testing a support level from January 2021. If support breaks, the stock could trade in the low-to-mid $80s.

(CMG and SBUX are holdings of Action Alerts PLUS. Want to be alerted before the portfolio buys or sells these stocks? Learn more now.)

At the time of publication, Ponsi had no positions in the stocks mentioned.