Dow 30: McDonald’s Trade Recommendation

Technical Overview

  • McDonald’s enjoyed a 60% rally from November 2016 to its peak in January 2018. During this period, the stock was supported by an upward-sloping trendline (green trendline in Figure 1). During the February correction, the stock moved below its support.
  • The February, March and April lows formed an inverse H&S pattern (lows – white ellipses; neckline – white downward-sloping trendline). The neckline was first broken in early April. Notice, the neckline did not serve as support during the initial pullback (as is often the case as per our discussion here).
  • On April 30, the stock jumped as the company reported strong 1Q18 earnings (violet arrow). The up-gap was filled four days later, giving a bullish K-Divergence signal.
  • Today (June 6), the stock jumped by nearly 2%, after finding support at the $159 mark on two more occasions in May and April.

Figure 1. MCD Daily Chart

Implications

  • The inverse H&S pattern has a $179 upside target (white vertical line).
  • A break above $164 (yellow horizontal trendline) will result in a buy signal based on the last two minor lows at $159 ($169 upside target).

Outlook

  • Moderately bullish in the $159 – $164 range. Outright bullish above $164
  • Neutral in the $155 – $159 range.
  • Bearish below $155 (lower violet horizontal trendline).

Trade Recommendation

  • Buy half a position at current levels ($162.38 at EOD on June 6). Another half upon a close above $164.
  • Target: Half at $169 (target from double bottom). Half at $178 (just below all-time high and target from the inverse H&S).
  • Stop: A close below $155.

Disclosure:

No position, may go long the stock or buy short-term calls on June 7 (based on opening price).

Featured image courtesy of Shutterstock. 

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http://www.linkedin.com/in/konstantindimov