Medium term
Trade view / 26 May 2016 at 10:53 GMT

UPDATE: McDonald's stock exhausting itself

Trader /
United States
Instrument: MCD:xnys
Price target:
Market price:

On April 19 I shared a trade idea to fade the rally in shares of McDonald's Corp (MCD:xnys) as the rally had gotten excessive and the rate of change of the uptrend was unsustainable for the time being. The stock has since fallen about 5-7% and it is time to take at least partial profits.

When McDonald's reported earnings on April 22, its stock fell but began to rebound and gave another push higher into the low $130s. 

As the upside momentum, however, remained largely unsustainable (particularly on the weekly chart), a mean-reversion move lower soon came to fruition. The stock remains well above its 50-week simple moving average and thus overextended through this lens, but the drop off the highs is good enough to take at least partial if not full profits on the short-side trade in MCD stock.

McDonalds Corp
Source: Saxo Bank

On the daily chart, note that the recent drop in MCD stock has so far mean-reverted it back to the blue 100-day simple moving average, which also held as support earlier this year in February and in March. 

Combine this with an oversold Stochastic oscillator and taking partial profits at the very least in this short position in MCD stock makes good sense. 

For the record, I do still think that MCD could fall somewhat further toward the $120 area, but greed has never been a profitable trading strategy over time.

McDonalds Corp

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Source: eSignal

— Edited by Michael McKenna

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