Dow component McDonald's Corporation (MCD) is struggling to recover from a brutal expiration week decline that dropped the fast food giant nearly six points in two hours. A bearish research report was blamed for the rout, but triple witching's quarterly influence offered a more logical explanation, with the swift decline forcing many short-dated calls to expire worthless.

Research firm M Science claimed on Sept. 12 that hurricane disruptions could force McDonald's to miss third quarter expectations, sending the stock into a tailspin that reached a five-week low at $155.77. The stock has held three-month channel support and the 50-day exponential moving average (EMA) into the new trading week, raising the odds for a recovery wave that re-establishes McDonald's strong leadership role. (See also: McDonald's Has a Long-Term Growth Problem.)

MCD Long-Term Chart (1990 – 2017)

An uptrend starting after the October 1987 crash gained traction throughout the 1990s, lifting the stock to $47.38 in the first half of 1999. It pulled back to the mid-$30s and bounced, testing the high in December and turning lower in a double top pattern that broke to the downside in January 2000. That decline signaled the start of the most bearish period in the stock's long history, relinquishing more than 75% of its value into the March 2003 low at $12.12.

It took four years for the subsequent bounce to complete a round trip into the 1999 high, yielding a late 2007 breakout that eased into a narrow trading range during the 2008 economic collapse. That resilience lifted the stock into a market leadership role after the bear market ended, generating a 2010 uptrend that posted a series of new highs into 2012, when it topped out just above $100 and dropped into a shallow trading range with support in the mid-$80s. (For more, see: If You Had Invested Right After McDonald's IPO.)

A persistent sideways pattern denied trend followers into an October 2015 breakout that caught fire, lifting the stock to $132 in May 2016. A pullback into the November election found committed buyers, yielding a strong recovery wave and secondary breakout in April 2017. Price action added points at a rapid pace into last week's all-time high at $161.72, ahead of a nasty reversal that could presage even lower prices in coming weeks.

MCD Short-Term Chart (2016 – 2017)

Price action after the 2012 top carved a holding pattern generated by weaker-than-expected same-store sales growth. The company then introduced the "all-day breakfast," an immediate hit that added to the bottom line while supporting franchisee reorganization and other cost-cutting initiatives. Those measures have now taken hold, allowing the stock to break out and post a fresh series of new highs. (See also: McDonald's Is Desperate to Modernize Its Franchisees.)

The stock eased into a rising channel in June 2017, posting four higher highs, but on-balance volume (OBV) has failed to respond, topping out in July and entering a distribution phase that could signal a longer-term top. However, minimal technical damage to this point has issued few sell signals, allowing bulls an opportunity to reload positions and lift the stock back to last week's high.

The stock spent the past four sessions grinding out a possible bear flag pattern, but it is too early to predict a rollover to weekly lows. More likely, the recovery wave will lift into broken range support at $158.50, with aggressive sellers making a stand at that level. On the flip side, a channel break would also signal new resistance at the 50-day EMA, favoring continued downside that could reach the 200-day EMA, which is currently rising through the low $140s. (For more, see: How McDonald's Makes its Money.)

The Bottom Line

Red flags are waving after McDonald's shares sold off nearly six points in a few hours in reaction to a bearish research report. While bulls have a golden opportunity to lift the stock back to the rally high, clearly delineated resistance could attract aggressive short selling interest that triggers an intermediate breakdown. (For additional reading, check out: Why McDonald’s Shares Could Fall 20%.)

<Disclosure: The author held no positions in aforementioned securities at the time of publication.>