Dow component McDonald's Corporation (MCD) beat second quarter earnings expectations by seven cents in Thursday's pre-market, reporting earnings per share of $1.99 on $5.35 billion in revenues. Refranchising agreements were cited for an 11.5% decline in year-over-year revenue, while global same-store sales rose 4%, with positive growth reported in local and international segments. The stock dipped lower after the news, while investors await executive insight during an 11 a.m. ET conference call.
Mickey D shares turned sharply lower after topping out near $180 in January 2018, finding support at $147 in March. The stock has traded within those boundaries for the past five months, carving a basing pattern near price levels traded in the second half of 2017. April and June base breakouts got cut short by aggressive selling pressure, while weak price action into July has found little buying interest near support at $155. (See also: McDonald's Stock May Fall 9% After Earnings.)
MCD Long-Term Chart (1990 – 2018)
The stock entered a powerful rally wave in the second half of 1990, splitting twice during an ascent from $6.28 to the March 1999 high at $47.38. It tested that level eight months later and sold off, completing a double top breakdown in January 2000. That signaled the start of a ferocious decline that relinquished more than 75% of the stock's value into a nine-year low at $12.12. Wall Street analysts wrote epitaphs at that time, declaring the end of the fast food giant's growth era.
The downtrend posted the lowest low in the past 15 years ahead of a mid-decade recovery wave that completed a round trip into the 1999 high in 2007. It broke out immediately, stalling in the $60s and dropping into a consolidation pattern on top of new support. The 2008 economic collapse offered a historic buying opportunity, with the stock dipping below range support in a single October session. This resilience triggered immediate leadership during a troubling period, contributing to a 2010 breakout to an all-time high.
The uptrend topped out just above $100 in 2012, giving way to three years of sideways action, followed by a 2015 breakout in reaction to the success of the "all-day breakfast" marketing campaign. The rally stalled above $130 in May 2016, while a pullback into November found committed buyers at the breakout level, generating superior upside into the January 2018 top at $178.70. The monthly stochastics oscillator entered a sell cycle in February 2018 and has now dipped under the panel's midpoint, predicting several more months of relative weakness.
MCD Short-Term Chart (2016 – 2018)
The decline into March 2018 ended at the .382 Fibonacci retracement level of the 2016 into 2018 rally wave, predicting that a breakdown through support in the $140s will reach the $130s and a test at the 50-month exponential moving average (EMA). A smaller-scale Fibonacci grid stretched across the January into March trading range organizes short-term price action, revealing strong resistance at the .618 retracement level at 166. The June breakout above that level reversed at the .786 retracement, which is bad news because lower highs at that harmonic level often signal topping patterns.
On-balance volume (OBV) ended an intense accumulation phase in July 2017 and eased into a sideways pattern (blue line) that posted a nominal new high in April 2018. It dropped back to the flatline into the third quarter, indicating a long-term standoff between bulls and bears. There's no timeline for the resolution of this neutral pattern, but the stochastics sell cycle suggests that mixed action could last well into the fourth quarter. This resting period makes perfect sense, given 2017's dramatic 41% annual return. (For more, see: Why McDonald’s Stock May Plunge 19% Further.)
The Bottom Line
McDonald's stock fell less than 1% after the company reported strong second quarter results, indicating a bull-bear balance that's unlikely to change following a conference call after the U.S. opening bell. (For additional reading, check out: How McDonald's Makes its Money.)
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>