Shares of burger giant McDonald’s Corporation (NYSE:MCD), while higher for about 6% year-to-date, has largely flatlined over the past four weeks. It’s not alone, either, with Wendy’s Co (NASDAQ:WEN) and Burger King parent Restaurant Brands International Inc (NYSE:QSR) also lame over the past month. However, with a little bit of a push by the broader stock market, MCD stock could soon ignite higher again.
It’s a funny thing. When a popular stock doesn’t move, it falls off traders’ radar and the media starts caring. But once that stock starts to move again, all of a sudden, traders chase it like a swarm of bees, and all the media talk makes it feel like it’s the only company in the world.
I get it. On one hand, it makes no sense to waste time with a stock that doesn’t go anywhere. (Though clued-in options traders can find ways to make money off sideways movement.) On the other hand, when a stock starts moving, often times the “easy money” has already been made.
What’s the best thing to do? Wait for breakouts, or get in early and play the waiting game? As usual, much depends on one’s time frame.
Let me explain with this current trade idea on McDonald’s.
MCD Stock Charts
From a multiyear perspective, McDonald’s shares remain in a well-defined uptrend that has been in place since 2003. On the lower end, this trend is also clearly supported by MCD’s 200-week simple moving average (red).
Over the years, MCD stock has had three meaningful pauses that I marked with the blue boxes. The latest of these bigger-picture pauses has been taking place for the past 14 months or so.
From this angle, we also see that the upper end of the current blue box also roughly lines up with the upper resistance line of the longer-standing channel. Also note how far McDonald’s has traveled over the past few months since the bottom of the blue box.
Through that lens, I would say that MCD stock is best left untouched. What about another lens?
On the daily chart, we see that McDonald’s shares have been trotting sideways for the past few weeks, and that this sideways move is taking place just below the previous highs from May 2016.
Given my assessment of the bigger-picture chart, I’m not in favor of any fresh and major long positions in MCD stock yet.
However, from a trading perspective, should McDonald’s break and hold above $130 and thus break out of its current trading range, a next upside price target around $135-$136 could open up quickly.
So is MCD stock something you should leg into prior to a potential near-term breakout higher? Not yet — not to me, anyway. Instead, wait for a breakout past near-term resistsance to occur, then play the upside momentum for a trade.
That’s a much better risk-reward proposition.
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