McDonald’s (NYSE:MCD) has continued to rally along with the broader market, but it seems to have found resistance near the big, round $100 mark for the time being. So what’s a prospective MCD trader to do?
First off, note the close correlation to the S&P 500 with which McDonald’s traded since late summer 2012. While it’s dangerous to make stiff assumptions around the continuation of correlation patterns, simply as a member of the S&P 500, McDonald’s 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, MCD also would be likely to suffer some setback should the broader market correct.
The longer-term chart of McDonald’s, 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, MCD has formed a respectable uptrending channel, which we will look at on the next chart as well.
After almost reaching the $100 mark, as well as the top end of the latest upswing in mid-March, McDonald’s stock started to shuffle sideways on a defined first support line at $98. A break below there would get the stock to the $97 area, where it would also sit right at the November uptrend. Any daily close below there would thus break the uptrend 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 off all of the technical shakiness, then on the upside a clear daily break above $99.70 might just get the stock enough boost to rally toward the 2012 highs near $102.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter here.