How's McDonald’s Doing? Its Charts Are Golden

Forget golden arches. McDonald's stock is above a 'golden cross' on the daily chart. The company reports earnings early Tuesday.
By Richard Suttmeier ,

McDonald's (MCD) - Get Report began serving all-day breakfast back on Oct. 6, 2015, and the immediate success of this aggressive menu expansion corresponds to the strong upward momentum that followed, according to the fast-food giant's technical charts.

What will McDonald's serve up when it reports earnings Tuesday?

Well, on its daily chart a "golden cross" appeared below the "golden arches" on March 30, 2015, when the stock closed at $97.88. This positive technical divergence occurred as the fast food chain began to test all-day breakfast options in San Diego.

A "golden cross" is confirmed when the 50-day simple moving average trends above the 200-day simple moving average and indicates that higher prices lie ahead. One of the trading guidelines from this formation is to buy weakness to the 200-day SMA and this is explained on the daily chart below.

The weekly chart for McDonald's shifted to positive two weeks before the fast food chain started serving up the all-day breakfast delights.

McDonald's is a benchmark component of the Dow Jones Industrial AverageI:DJI . The stock is up 9.6% from its June 27 Brexit low of $116.08 versus a gain of 9.1% for the Dow 30. McDonald's has a dividend yield of 2.94% versus the yield of 1.56% for the 10-Year U.S. treasury note. The stock has a slightly elevated price-to-earnings of 24.2 versus 19.8 for the Dow 30.

Analysts expect McDonald's to earn $1.39 a share in earnings when the company reports earnings early Tuesday.

It appears that recent share price strength is in anticipation of the decision by the fast food giant to expand further its all-day breakfast items this September. 

Here's the daily chart for McDonald's.

Courtesy of MetaStock Xenith

McDonald's closed Thursday at $127.18, up 7.7% year to date, but is down 3.6% since setting its all-time intraday high of $131.96 on May 10. The stock has a solid gain of 12.8% since the Feb. 8 low of $112.71.

The daily chart shows the stock has been above a "golden cross" since March 30, 2015, when the 50-day simple moving average moved above the 200-day simple moving average. The stock closed that day at $97.88 and this technical signal indicates that higher prices lied ahead.

Since then, the stock tested it 200-day simple moving average of $96.08 on Sept. 28, 2015, then again at $117.34 on June 27, 2016.

Here's the weekly chart for McDonald's.

Courtesy of MetaStock Xenith

The weekly chart shows a red line through the price bars, which is the key weekly moving average (a 5-week modified moving average). The green line is the 200-week simple moving average considered the "reversion to the mean." The study in red along the bottom of the chart is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicates overbought and readings below 20.00 indicates oversold. A negative weekly chart shows the stock below its key weekly moving average with weekly momentum declining below 80.00 in a trend towards 20.00.

The weekly chart for McDonald's is positive with the stock above its key weekly moving average of $123.37 and well above its 200-week simple moving average of $100.95. The weekly momentum reading is projected to rise to 35.52 this week up from 28.24 on July 15.

Investors looking to buy McDonald's should consider doing so on weakness to $122.63 and $118.71, which are key levels on technical charts until the end of 2016.

Investors looking to reduce holdings should consider selling strength to $129.57, which is a key level on technical charts until the end of July.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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