McDonald’s Corp (MCD) continues to rally along with the broader equity markets but seems to have found resistance near the big round $100 mark for the time being. For a little perspective and to evaluate what to do with the stock at current juncture, allow me to flip through some charts.
First off, note the close correlation to the S&P 500 with which McDonald’s Corp (MCD) traded since late summer 2012. While stiff assumptions around the continuation of correlation patterns are dangerous to have, simply as a member of the S&P 500, McDonald’s Corp (MCD) will most likely retain some sort of positive correlation over time. As such, given the increasingly near-term overbought nature of the S&P 500 itself, McDonald’s Corp (MCD) too would be likely to suffer some setback should the broader market see some sort of price correction.
The longer-term chart of McDonald’s Corp (MCD) looking back to late 2008 shows a stock with a history of consistent mean-reversion moves each time it got overextended beyond the uptrend line. This trait is healthy and through that lens speaks volumes for the argument against chasing a stock higher.
On the same chart we also note that off the November lows the stock has formed a respectable up-trending channel, which we will look at on the next chart.
After almost reaching the $100 mark as well as the top end of the latest up-swing in mid March, the stock started to shuffle sideways on a defined first support line at $98.00. A break below there would get the stock to the $97.00 area, where it would also sit right at the November up-trend. Any daily close below there would thus break the up-trend and likely accelerate the stock’s slide.
Momentum in the stock, as measured by Stochastics, has flashed negative divergence since early March, another check in the risk aversion column.
Should the stock decide to shake all of the technical shakiness off then on the upside a clear daily break above $99.70 may just get the stock enough boost to rally towards the 2012 highs near $102.
