Shares of burger giant McDonald’s Corporation (NYSE:MCD) are higher by 40% for the year-to-date, which for the trend following crowd has been one heck of a trade. With only a few trading sessions left in 2017, I don’t want to get too cute or lean out of any windows when it comes to mine or my clients’ portfolios, but MCD stock looks to be serving up a tasty little trade at present.
As I often allude to in this here column of mine, trend following over my nearly 20-year trading and investing career has and continues to prove itself as the highest probability strategy with the best payoffs. The devil of course and as always lies in the details, i.e. in this case its the proper risk management that makes the difference whether one is wildly successful or only moderately so applying a trend following strategy.
Before diving into the charts of McDonald’s stock let me say that what I am offering here today is merely a “trading opportunity.” More fundamentally speaking, I like the idea that the company is moving to an even further franchise business, which is to say that its franchised restaurant goal is 95% of the fleet whereas currently about 92% of restaurants are franchised.
MCD Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the multiyear chart, MCD stock in my eyes is significantly overbought as it has not only broken above the upper end of the up-trend that has been in place since 2003 but recently also reached the upper end of the up-trend since 1994.
This does not mean the stock can’t move higher from here, but to yours truly makes the current juncture not an optimal place to add more stock to a longer-term asset allocation model.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
As the S&P 500 spent the past few days trotting sideways, MCD stock used this opportunity to also take a breather and “consolidate” lower by around 2% to its yellow 21-day simple moving average.
Note that since its last breakout in early October, McDonald’s has held nicely above this moving average — which is no guarantee it will bounce from here this time, but if usual year-end spirits remain there is a good chance MCD stock bounces from here for a trade.
Upon the next complete bullish reversal, i.e. one-day rally of at least in the case of this stock about 1%, long side trades into the high $170s can be setup and the lows of the bullish reversal day used as a stop loss signal.
Check out Anthony Mirhaydari’s Daily Market Outlook for Dec. 22.
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