While the broader stock market as measured by the S&P 500 took a dive in October, shares of McDonald’s (NYSE:MCD) fared notably well both in absolute and relative terms. MCD stock rallied close to 6% in October, and looking at the charts, this rally mode looks likely to continue in the intermediate term.
A cornerstone of my trading and investing process is not only looking at stocks in multiple time frames but also respecting both the relative and absolute performance of a stock in different time frames. This framework allows me to gain much-needed perspective every day, week, month, year and more importantly allows me to focus on high probability trades.
In fact, the vast majority of “traders” I come across don’t have any process but merely look at a chart and declare an opinion. That “shortcut” type of approach to the markets most often ends with steep losses, as no perspective also means no risk management.
McDonald’s Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
Shares of the world’s restaurant, i.e. McDonald’s, through a multiyear lens have seen a nice rally … along with the broader stock market lift, of course. Yet if we look at the lower part (blue line) of the chart, we see that in relative terms, MCD stock has notably underperformed the S&P 500 from about 2012 into 2016. Since 2016, the stock is showing better signs of relative strength — and particularly the relative strength of recent weeks now looks promising for continuation.
In the upper part of the chart, we see that MCD stock since 2012 has had three sideways consolidation periods, the third one of which it remains in. However, considering the stock’s waking up relative performance and thus reflecting investors increasingly attracted to the stock, a breakout higher could soon occur.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see that MCD stock had a nice pop on Oct. 23 following its latest earnings report. This allowed the stock to move back up to its January highs. Over the past few days the stock has consolidated around these highs in the $170s and barring any sudden bearish reversal the odds increasingly favor a break higher to new year to date highs and above the $179 area.
Traders could look to leg into initial long positions in MCD stock around the $177 area with a next upside target at $185, followed by $190. Any sharp bearish reversal would be a stop-loss signal, and one could always re-enter a long position following a bullish reversal.
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