McDonald’s (MCD) finally showed some good follow-through buying price action on Tuesday following Monday’s release of its February comparable sales figures. Importantly, the move in MCD stock helped break important technical resistance.
The Golden Arches came in with global comps that were down 0.3%, vs. estimates for McDonald’s to post a 0.1% decline. In the U.S., comps also fell more than expected (1.4%) and dipped 2.6% in Asia/Pacific, but sales actually rose 0.6% in Europe, which also coincides with the marginally improving economies on the European continent.
MCD stock didn’t move much on the news on Monday, which at the margin was something I took as fairly bullish, knowing that on Tuesday, McDonald’s executives were scheduled to speak at a retail conference — and that said conference could well be a catalyst to move MCD. Sure enough, on Tuesday, McDonald’s CFO Peter Bensen said the company is looking to return $5 billion to its shareholders this year. He said McDonald’s always is looking to optimize its capital structure, and one way to reward shareholders would be to take on more debt to fund more share buybacks.
The result was a 3.8% rally in MCD stock Tuesday that took shares above multimonth technical resistance on a great surge in volume.
MCD Stock Technicals
The multiyear trend in MCD stock remains remarkably intact, where the 2009 uptrend serves as the mother line to respect. On the weekly chart below, note that both the 2012 lows and thus far the 2014 lows bounced off this line. Whenever the current cyclical bull market, which is now five years old, comes to an end, this big-picture support line will be particularly important to reference for both medium-term and active investors and traders.
For now, however, Tuesday’s visually clear and obvious breakout out of an 11-month downtrend looks to be setting MCD stock up for more upside in coming weeks and possibly coming months.
As I mentioned above, Monday’s weak comps report hardly affected the stock, and that was a positive testament which was confirmed as bullish on Tuesday.
Furthermore, note that on March 3, MCD shares gapped lower and formed a doji candle on the daily chart. The very next day, however, McDonald’s stock moved right back up, thus showing that bulls are ready to step in when the stock shows weakness.
With Tuesday’s rally, MCD stock is now also back above its red 200-day moving average for the first time since last November, and this momentum now could push the stock into the low $100s, i.e. back towards its early 2013 highs.
Note that MCD stock usually is a fairly slow mover at the margin, so personally I am looking to play the stock via the options table, where I will not only be able to gain leverage but also can manage my risk very nicely.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.