Shares of burger giant McDonald’s Corporation (NYSE:MCD) rose sharply over the past month and a half and as a result marginally broke out of a multiyear consolidation phase that has created a buzz in the investment world, although sentiment remains decidedly negative on the company.
McDonald’s, however, is working on a noteworthy turnaround plan, which not only sounds and tastes better, but with the stock price doing positive things, we could see the investor masses jump on board in the not-too-distant future and get MCD shares moving higher still.
The global burger mania of recent years resulted in a flurry of new burger chains and the initial public offering of Shake Shack Inc (NYSE:SHAK). With an increased focus on quality ingredients, many of these newer burger establishments simply outplayed McDonald’s at its own game in the past few years.
It’s also no secret that the reputation and negative rumors around McDonald’s food has been hurting its image for a lengthy period of time.
As such, earlier this year, MCD initiated some big changes not only on its menu but also the way food is ordered. The “create your taste’ initiative, for example, allows customers to literally build their own burgers from a touchscreen monitor and the food is then brought to the customer’s table.
This renewed focus on quality and service in my opinion has already shifted McDonald’s into better light and judging by the stock price investors too have taken notice.
MCD Stock Charts
On the charts, we see that while MCD stock has mostly trotted sideways since late 2011, it held above its long-term support line the entire time. In fact, the sharp but quick drop in August retested this line of support for the first time since 2008. The multiyear basing period looks to be sound in structure; it likely was a much-needed rest for McDonald’s stock before it could ultimately resume its upward trajectory.
Looking at the daily chart, we see that MCD stock from the August lows up to Wednesday’s intraday highs rallied about 20% in a straight shot and also broke it marginally past horizontal resistance and to new year-to-date highs.
In fact, MCD stock’s rally was so sharp that it moved from a 52-week low in late August to a 52-week high earlier this week.
With McDonald’s shares very overbought in the immediate- to near-term, investors would be wise to let them settle and consolidate somewhat, and look to buy MCD stock at lower prices.
Considering the constructive bigger-picture posture of MCD stock, active investors could feel comfortable legging into long positions in the $95-$100 zone for a move toward the $120 area within the next six months.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
