timwest

MCD rallying into resistance zone

BATS:MCD   MCDONALDS CORP
1135 22 5
MCD             is rallying back to the price level where the news was announced back in early March that the CEO             was going to retire in June. Since that time, KO             (Coca-Cola), BUD (Budweiser) and other global consumer non-cyclical stocks have made moves higher and the stock market has moved back up as well. MCD             is rallying to catch back up from the bad news, but you can see on this chart that there was a meaningful seller that was aggressive at the 101 level and would sell down to the 99 level on three different occasions.

You can also see that the new low in March was a washout of the previous low and set the tone of this stock into a "downtrend" which is now reversing and yet this "higher-high" is putting MCD             right into "supply" where I think there is a low-risk entry on the short side.

I am only looking for a retest of the 96 level where the lowest range occurred in this last decline. I view risk normally as 3 average ranges. The 1 year avg range is $1.08/share. It looks like this rally may have some momentum to lift it back up a little further into the green circle on the chart.

By: Technical Tim, April 3, 2012 1:28PM EST
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Agreed Tim , I too starting to be "bearish" MCD but , cautious, it had a very nice run over the past 2 years or so
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MCD Daily Analysis
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charttrader PRO StockFxMarket
oops:)
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Bingo! Well done Tim. As always...
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timwest PRO charttrader
Thanks chart trader. Love the "bingo" :-)
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The 96 target was reached with two chances to enter at the target entry level.
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MCD down on news this morning (May 8th at 9AM EST). Wish I had peeked at the chart again as once again it had a low volume rally back into resistance AFTER a heavy volume decline two weeks ago. This is very bearish and implies long term shareholders are unloading shares and overwhelming buyers. It takes patience to wait for chart setups to occur but often they do tell a valuable story.
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Tim, thank you - great chart. Where do you think MCD is headed now ?
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timwest PRO StopPrintinMoney
I believe it is going to be in a defensive phase and decline or hold this price for the next month or two. The reason for my "guess" is that the strength in the dollar makes MCD's foreign earnings translate to fewer US$'s and the sellers that I pointed out on the chart were pretty aggressive and that stock might take awhile to find strong hands. When people look at the valuations of some of these stocks, I think they will find that there are plenty of other stocks that are far more attractive and present better risk/reward ratios. So, relative to other stocks, I believe that MCD is very expensive or "less attractive". So, if you own MCD and refuse to sell the stock down here, consider selling LEAPS calls against the position to generate additional income. Use strike prices at 90, 95, or 100. Alternatively, if you are already out of MCD and wish to find a place to buy it, I would consider selling LEAPS puts at strike prices of 75 and 70 going out 1 and 2 years. Consider WMT and look at how attractively priced it is relative to MCD for its sales growth, balance sheet strength, stability of earnings and cheap valuation.
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Thank you Tim, you're a great asset to all of us. Very helpful!
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timwest PRO StopPrintinMoney
You are welcome. Thank you for your kind comments. My pleasure. Tim
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Wish I had put this trade on - long WMT, short MCD. It's probably still a great trade, long term.
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What should be the targets for these trades?
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timwest PRO charttrader
Fundamentally, WMT could rally 40% and still be "cheap" relative to its historic valuation levels. MCD could fall 30% and still not be "cheap" relative to its historic relative valuation. So, there is plenty of potential in the pair, but finding a perfect time to enter the trade isn't easy. One method is to enter a small slice over time (perhaps 10 days - 20 days) to get an 'average' price. Risk 10% for a 40% gain in the position over the next year. That is just 'off the cuff' analysis, but it is based on two decades of valuation data for MCD and WMT.
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This makes perfect sense, thank you very much. Just found this article: http://seekingalpha.com/article/696321-why-is-wal-mart-hitting-52-week-highs
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timwest PRO charttrader
I also like to graph ratios of stock prices at stockcharts.com Just put a ":" between the symbols with no spaces.
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Do you have account with stockcharts? What other valuable features do they have btw?
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timwest PRO charttrader
I've used stockcharts.com for 9 years. Ratio charts are my favorite indicator. "Volume at a price" is useful also.
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Bought WMT at 72.00. Moving pretty well.
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charttrader PRO charttrader
WMT could rally 40%
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