McDonald’s Stock Trading Lower After Mixed Quarter

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McDonald’s Stock Trading Lower After Mixed Quarter

McDonald’s Corporation (MCD) dropped more than 3% in pre-market trading Tuesday after missing third-quarter profit predictions by $0.10 and just achieving cautious sales expectations. Despite a 5.9% gain in worldwide comparable sales, revenue increased by just 1.1% year on year, emphasizing weaker-than-expected domestic sales and greater expenses. For the first time since the stock hit that level in the second quarter, the sell-the-news response is challenging the psychological $200 level.

A rally through mid-summer terminated at rising channel resistance dating back to 2016, while this morning’s sell-off indicates the start of the second leg of an intermediate correction that might finally hit channel support in the lower $180s. A drop into that price zone would also be the first retracement from the April breakthrough over five-month resistance, indicating a low-risk buying opportunity.

MCD Long-Term Chart (1990 – 2019)

The stock broke out over 1987 resistance in 1990, launching a robust trend gain with many rallies waves that culminated in the November 1999 high of $49.56. During the ascension, three stock splits underlined committed purchasing enthusiasm, which was powered by significant worldwide development. In the first quarter of 2000, it broke down from a double top pattern, kicking off a downturn that lasted until March 2003, when selling pressure eased to a 10-year low in the mid-teens.

Positive movement throughout the mid-decade bull market resulted in a breakthrough in 2007, followed by a tight trading range that held fresh support during the 2008 economic meltdown. This fortitude supported a 2010 rise that peaked in the second quarter of 2012 after crossing into the triple digits. The top signaled the beginning of a difficult era for shareholders, with almost four years of sideways movement as the S&P 500 soared to all-time highs.

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In 2015, the all-day breakfast campaign revived buyer interest, resulting in a breakout that stair-stepped beyond $200 in May 2019. In August, a last purchasing wave reached an all-time high of $221.93, paving the stage for a slow-motion drop that settled over $205 in September. The stock has been battling at that level over the previous month and has now dropped to a four-month low after this morning’s confessions.

In September, the monthly stochastics oscillator initiated a sell cycle in the oversold zone, indicating at least six to nine months of relative weakness. The negative signal appeared at the same time as the price reversed at three-year rising channel resistance, revealing a drop into the low $180s. It is still trading above $200, which also represents 200-day exponential moving average (EMA) support, indicating a critical level for market participants to monitor in the coming sessions.

MCD Short-Term Chart (2017 – 2019)

When the stock gapped down in September, it broke 50-day EMA support, and it has since failed twice to remount that level. Price activity is trapped between a rock and a hard place, with the 200-day EMA near $200, implying that bulls and bears will engage in multi-day combat until one side or the other triumphs. Bears now have the upper hand, as the long-term sell cycle strengthens.

The accumulation-distribution indicator on-balance volume (OBV) peaked in April 2018 and failed to return to that level when the stock reached a new high in November. In August 2019, it halted just above resistance and has been grinding sideways for the last two months. This week’s higher-than-average sell volume may complete a turnaround, lending credence to a prognosis of lower prices in the coming months.

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The Bottom Line

Despite strong worldwide sales, McDonald’s missed third-quarter profit forecasts. Weakening domestic sales and rising expenses may be to reason, implying that the stock will continue its intermediate fall, with committed buying activity not expected until the low $180s.

Disclosure: At the time of publishing, the author had no investments in the aforementioned securities.

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