Shares of McDonald’s Corporation (NYSE:MCD), while higher by about 34% for the year, until earlier this week spent a few months in a consolidation phase.
Note that with earnings season kicking off today, from a trading perspective it is important to circle any given company’s earnings release date.
To wit, McDonald’s is scheduled to report its next batch of earnings on Oct. 24, which is to say that “trading positions” in my eye should be closed before these reports and reevaluated for new trades once earnings have passed.
MCD Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
When I last discussed MCD stock on June 6, I offered a cautious tone and called the stock near-to-intermediate-term overbought. Although the stock did see another 3%-4% of upside to the upper end of its trading range over the past few months, largely speaking it was the right call in June to take near-to-intermediate-term profits in the stock.
In fact, looking at the longer-term weekly chart not much has changed since June, i.e. MCD stock in my eye remains grossly overbought in this time frame.
To be clear, this does not mean the stock can’t move higher in the near-to-intermediate term, but allocating fresh long-term capital in a meaningful way at this juncture in MCD stock in my eye remains a low-probability trade.
Note that MCD as a result of the steep year-to-date rally earlier this year broke out of its longer-standing up-trending channel. Ultimately most stocks will mean-revert back to their longer-term up-trend lines for better longer-term buying opportunities.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart however, we see that the recent multimonth consolidation pattern has come a long way in working off some of the near-to-intermediate-term overbought readings. This consolidation phase ultimately was resolved higher earlier this week with a break and hold above the $160 area.
Breakouts such as we are seeing in MCD stock can be taken advantage of with a high-probability income-generating strategy using options.
Active investors looking to capitalize on further strength in MCD stock could do so at current levels for a possible move toward $175-$180. As highlighted above however, MCD stock too like most stocks in the near-term is at risk of another pullback should the broader market encounter a spike in volatility.
In other words, any immediate term volatility in MCD stock should not deter active investors from another leg higher in McDonald’s, barring any outsized news flow.
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Source: Investor Place