A Countertrend Trade in McDonald's

 | Oct 11, 2013 | 8:30 AM EDT
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McDonald's (MCD) is on my radar because of Fibonacci time and price parameters ... and yes, this is a countertrend trade. 

Let's start by looking at the timing parameters. On the daily chart below, I have identified two time windows suggesting a possible low via the confluence of the timing cycles. The first time window came due on Oct. 7 through 10. The second time window comes in on Oct. 15 and 16.

Note that one of the time cycles, for example, is the 100% projection of the decline into the Aug. 27 low, which lasted 16 trading days. Note that the most recent swing in time into the Oct. 9 low has lasted 15 trading days. That is what I call symmetry. Symmetry is similarity or equality when comparing swings in the same direction.

I apply this to both the time and price axes of the market in this analysis. When a stock trades into a cluster of timing cycles, I look for a possible reversal of whatever it is doing at that time. Since we are trading lower into these cycles, I'm going to look for a low and a possible reversal back to the upside.

(You can also see the pink histogram below the chart standing out. This is a visual of the confluence of cycles.)

Now let's look at price. We are currently testing a key price support cluster at the $92.44-$93.27 area. This support zone includes two 100% price projections of prior swings down, along with a 1.272 and 1.618 extension of prior low-to-high swings. So far we are holding above this key support into the first grouping of timing cycles. As long as we continue to hold above here, I am looking at the buy side in MCD, with my risk defined below the recent low made on Oct. 9. If this is taken out, I will have to back off the buy side and take another look at price into the second time window instead.

At this point, I would just be looking for a corrective rally to begin with. If you do get triggered into the buy side of this setup, please consider using a trailing stop if it starts to move in your favor. Since this is a countertrend trade, you may want to consider using a relatively low-risk stock option strategy for an entry.



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