As the blistering summer heat continues to broil most of the country, many investors will be turning their gaze toward McDonald’s (NYSE:MCD) next week to find out whether consumers have been surviving on a diet of cold smoothies and salty fries.
On July 23, the home of the Golden Arches will step into the earnings spotlight. Analysts are predicting a profit of $1.38 per share, but the whisper number (according to EarningsWhisper.com) comes in 1 cent higher. This optimism shouldn’t come as too much of a shock, as the restaurant operator has surprised to the upside by an average of 3% during the past four quarters.
The current earnings estimate represents a 2.2% increase over the company’s year-ago earnings of $1.35 per share.
Wall Street remains an admirer of Ronald McDonald and his trademark big red shoes, as the company has been given 13 strong buy ratings and two buys, while only nine have rated it a hold and not one has given the firm a sell rating.
Options players have optimistic expectations for the security as well. Looking at the security’s open interest configuration, we find that the August 92.50 call is home to more than 6,000 contracts, while the August 95 call has more than 3,000 calls in open interest.
On the other hand, puts aren’t too far behind, with more than 4,000 contracts at the August 90 strike.
So what’s the big outlook among speculators?
Wall Street is giving MCD a big thumbs-up, and options players aren’t too far behind — but I wouldn’t quite call them enthusiastic about their love. That lack of enthusiasm could prove to be an interesting development when combined with the security’s technical dilemma.
Looking at the equity’s charts, we find that MCD bounced back from its recent lows in the $86 area and recently has shuffled sideways under resistance at the $93 level. This $93 region could prove to be an ugly sticking point for the shares.
First, the stock has run straight into resistance at its declining 10-week moving average at the $93 level and might now struggle to find the strength to overtake the simple trendline.
What’s more, the $93 area marks a 50% retracement of the stock’s decline from it 2012 highs in the $100 area to its lows in the $86 region. The combination of its 10-week trendline and the 50% retracement mark could send the stock down for another test of support in the $86/85 area.
Add in the bonus of traders starting to show some weariness of the security with its slow chart performance, and MCD could see a sharp selloff in its future.
Traders looking to capitalize on a pullback in the Golden Arches should consider the security’s August 92.50 put, which was last priced at $1.86, or $186 per contract. The low price for this at-the-money option means that the stock has to fall only 1.7% from Wednesday’s closing price of 92.22 for the options buyer to break even.
Furthermore, if MCD were to pull back to the $86 level before August options expire on Aug. 17, the trader would be able to lock in a profit of nearly 250% in one month.
As of this writing, Jocelynn Smith did not hold a position in any of the aforementioned securities.