Don't Grill That Burger Just Yet

 | Mar 23, 2012 | 10:18 AM EDT  | Comments
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Stock quotes in this article:

mcd

,

xly

,

DIA

,

VCR

This column from ETF Profits is being posted here as a bonus for Real Money readers. For a trial of ETF Profitsclick here.

The immediate trend in McDonald's (MCD) -- a large component of Consumer Discretionary Select Sector SPDR (XLY), SPDR Dow Jones Industrial Average ETF (DIA) and Vanguard Consumer Discretionary ETF (VCR) -- has been downward since the Jan. 20 high. Clearly, at least on the daily chart, it's not in a very bullish pattern.

McDonald's (MCD) -- Daily
Source: Dynamic Trader

But what if, in order to determine the value of the stock, we step back a bit and look at the bigger picture? I like looking at the weekly chart, as it reveals where a lot of the larger prior declines terminated within this larger uptrend -- one that started in March 2003.

McDonald's (MCD) -- Weekly
Source: Dynamic Trader

These declines amounted to the following: $7.20, $6.58, $14.33, $21.21, $14.02, $7.13, $6.53, $8.80, $7.56, $7.57 and $7.26. The swings that were most similar to one other were the eight ranging between $6.53 and $8.80.

If we project those prior declines from the January high, we can determine a very important potential support decision at the $94.39-to-$95.69 area. The 100% price projections that I've used to identify this possible support level also overlap with quite a few other Fibonacci price relationships. There are at least 10 price relationships that come together within this relatively tight range. Keep in mind that this does not necessarily mean the area will definitely hold. What it does say is that it's a rather important level for this stock.

Note that the current decline from the January highs has amounted to $6.45 so far. That's similar to the first group of prior corrective declines. So, is it time to buy McDonald's again?

The answer is "maybe." I love this support area as a decision, but I will not step up to the plate unless I see a reversal trigger that indicates it is worth placing a bet against this key zone. If you have read my previous articles, you'll know that I use a trigger chart to filter entries against the trade setup zones. In this case, I want to see a 30-minute chart signal an entry. So let's see what the market decides in reference to this key price support zone, and then trade accordingly -- or not at all!

For more information on triggers, please refer to my prior informational piece on the subject (available to ETF Profits subscribers).

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