McDonald's Corporation (MCD) reported quarterly earnings results on Jan. 30 with better-than-expected earnings per share. The stock traded higher but then reversed direction as the chart patterns deteriorated. After trading as high as $187.79 on Jan. 30, McDonald's stock dropped by 6.5% to a low of $175.66 set on Monday, Feb. 4. This low was just above my weekly value level at $175.63.
The fast food giant's stock closed Tuesday, Feb. 5, at $177.57, unchanged year to date and up just 5% from its Dec. 26 low of $169.04. The stock is 7% below its all-time intraday high of $190.88 set on Nov. 29. I view the Nov. 29 high and the Jan. 25 high of $189.42 as a potential double top.
McDonald's is arguably the most popular fast food franchise in the world today. The maker of the Big Mac is a component of the Dow Jones Industrial Average, but the stock is not cheap, with a P/E ratio of 22.62 and a dividend yield of 2.78% according to Macrotrends.
The daily chart for McDonald's
McDonald's stock has been above a "golden cross" since Oct. 16, when the 50-day simple moving average rose above the 200-day simple moving average, indicating that higher prices would follow. The stock rose by 16% from $164.07 on Oct. 16 to its all-time intraday high of $190.88 set on Nov. 29. The stock slumped by 11% from this high to its Dec. 26 low of $169.04.
The close of $177.57 on Dec. 31 was my input to my proprietary analytics and resulted in my annual pivot at $117.99, which is now a magnet shown as a horizontal line. The close of $176.72 on Jan. 31 calculated my monthly risky level at $183.17. My weekly value level is $175.63.
The weekly chart for McDonald's
The weekly chart for McDonald's is negative, with the stock below its five-week modified moving average of $179.43. The stock is well above its 200-week simple moving average, or "reversion to the mean," at $138.07, last tested during the week of Sept. 11, 2015, when the average was $95.65. The 12 x 3 x3 weekly slow stochastic reading is projected to slip to 55.79 this week, down from 59.89 on Feb. 1. This favors a "sell strength" strategy.
Trading Strategy: Given these charts and analysis, investors should buy McDonald's shares on weakness to my weekly value level at $175.63 and reduce holdings on strength to my monthly risky level at $183.17. My annual pivot of $177.99 remains a magnet.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.