Editor’s note: Serge Berger, the head trader and investment strategist for The Steady Trader, will be providing the Trade of the Day until Sam Collins returns on July 25.
McDonald’s (NYSE:MCD) – The fast food giant franchises and operates restaurants in over 100 countries around the world. Its logo is one of the most recognized symbols in the world, but most importantly for this column, the stock price has been moving in the right direction on the chart.
Before looking at the charts, let me reiterate the difficulty and potential danger of technical stock picks during earnings season. As a principle, I don’t buy and hold stocks through their earnings announcements because big moves in either direction are always possible if institutional investors don’t like what they see. I do, however, analyze stocks ahead of their earnings announcements. Then, if post-earnings the price action is still orderly and I like what I heard from the company, a higher probability setup should present itself. McDonald’s announces its earnings on July 22 before the open.
On the weekly chart looking back four years, we see how nicely the stock has moved up in a channel since the spring of 2009. Besides being a cheap meal out for hungry customers, and hence a welcome relief during the economic slowdown, the company is also profiting from the lower U.S. dollar because of its international sales.
On the daily chart looking back to October 2010, we see the stock price managed to pierce above and successfully retest horizontal resistance around the $80 level in the May/June period, and has rallied around 8% since. The most recent uptrend that started in March is firmly in place for now.
Zooming in closer, note the vertical leap of the stock in late June/early July, which of course was the broader market rally from the end of the second quarter. The stock has since consolidated (gray bubble) and looks poised to move higher.
While aggressive investors may want to buy a breakout higher out of the consolidation phase, more risk-averse investors could wait for the stock to pull back to the blue uptrend line for better risk/reward. Stops could be set near $80 with a profit target around $100, but we need the earnings announcement to come to pass first.
