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LivestreamMenuLately, I’ve been more apt to grimace when sifting through the charts looking for a favorable setup to sink my teeth into. However, this week I think there may be one to nibble on ahead of its earnings next week. McDonald’s ! (MCD) It’s an old friend that often gets overlooked, but has been a prominent member of the Dow Jones Industrial Average since 1985, making the fast food chain one of its longest tenured companies. While it’s a consumer discretionary name, in many low-income areas this is a staple. With the affordability crisis making headlines and the K-shaped economy a focal point, this could be the backdrop needed to get investors back to lovin’ it again. As we head into next week’s earnings, shares are lower by 11% year-to-date and 21% off their March peak. Earnings have not caused much volatility over its history, with the average move being roughly +/- 2.3%. So, the risk of a big move in either direction may be muted, but it is that direction we want to focus on – let’s look at the charts. The Daily Chart… Over a one-year daily chart we see a rather ominous downtrend. However, momentum is starting to shift. The 50-day moving average has been the primary resistance over the last several weeks. Yet its RSI is trending higher, creating a bullish divergence that we tend to see near notable bottoms. We also see volume picking up as the stock has hovered around these lows, indicating this could be the crescendo of the move. The risk parameter we want to establish is to use the recent $260 low as our floor and, if that doesn’t hold, we want to get out. It’s not only significant on the near-term chart, but very important on the longer-term five year weekly. The Five-Year Weekly Chart We always like to back things out to a longer time horizon for perspective. In the case of McDonald’s, this is when the chart gets tasty. Shares are trading below their 200-week moving average, which is not ideal. If we overlay an anchored Volume Weighted Average Price (VWAP) level from the Covid lows going back to 2020, we see the stock is trading at a key area of interest where in the past it has held like a champ. This $261 level also coincides with our one-year daily lows and should be used as our support level. If it breaks below we exit the trade until it recaptures that threshold. We have seen over the years that price action has caused the stock to be oversold and rebound quickly. Again there is a bullish RSI divergence on the weekly chart as well. The last significant low and test of that anchored VWAP level was in July of 2024 and it held despite breaking below the 200-week moving average. Today’s setup is eerily similar to that. Both rallies also saw the MACD trigger buy signals as the stock held and moved higher. While the signal hasn’t triggered yet, it is starting to coil in that direction. The Trade… We know our defined risk based on both time frames. If price breaks $260, exit and move on with a minimal loss. The reward would be a minimal mean reversion to the 200-week moving average at $288 or better yet the 50-week at $300. In this case we are anticipating the turnaround without confirmation. The true technician waits for confirmation of the underlying trend, but this is the trader in me talking. We are trying to anticipate the move before it happens. Given low volatility on earnings day, a good support area and the fundamental story changing in much of the sector, McDonald’s may be worth a quick stop. Jay Woods, CMT with Chase Games DISCLOSURES: None All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.Read More
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