McDonald's Corp. (MCD) broke out of a basing pattern in October and has soared to new highs in November. As we look to December and the new year what do the charts and indicators suggest?
Is there a strategy that could help us navigate the buying of so-called recession stocks (read what Jim Cramer has to say about this here) and the selling of stocks with exposure to the Chinese market? I don't know but let's check it out.
In the daily bar chart of MCD, below, we can see a small broadening formation this month. Some chart watchers call broadening formations backward triangles. Notices the wider and wider swings of MCD this month? We make a high and then retreat. We come back to make another new high and pull back. MCD rallies again to a third new high. Get the picture? This is a difficult pattern to trade in the short-run and is pretty much guaranteed to cause you to lose money.
Wait. There is more.
Broadening patterns can be continuation patterns where we see the stock break out to the upside in this case or they can be reversal patterns where we go in the other direction from the previous trend. Hard to handicap.
Looking at the indicators we see that prices are above the rising 50-day moving average line and the gently rising 200-day moving average line. Last month the 50-day crossed above the 200-day line for a bullish golden cross buy signal.
The daily On-Balance-Volume (OBV) line shows a rise from September telling us that buyers of MCD have been acting more aggressive. In the lower panel is the 12-day price momentum study, which is not showing us a bearish divergence but the up and down moves of November show some weakness in momentum.
In this three-year weekly bar chart of MCD, below, we can see the new highs that were established this month. Prices are above the rising 40-week moving average line. The weekly OBV line looks like it has made a new all-time to confirm the new price highs.
The trend-following Moving Average Convergence Divergence (MACD) oscillator is in a clear buy mode above the zero line.
In this weekly Point and Figure chart, below, we can see the long rise from 2015. Pretty impressive. No distribution on this chart so we should expect further gains. The big round number of $200 is the likely nearby price target.
Bottom-line strategy: Keeping in mind the broadening pattern we noted above, traders should risk below the recent November lows or just below $181 until we get past some of the potentially big-event risks in the weeks ahead.