Wendy's Is Ready to Make a Move on McDonald's

Wendy's has been underperforming its big competitor, but the stock looks prepared to make up lost ground.
By Robert Moreno ,

Shares of McDonald's (MCD) - Get Report have been on a tear recently. The stock has outperformed competitor Wendy's (WEN) - Get Report   by 16% year-to-date -- and most of that outperformance has come in the last two months. 

At this point in time, McDonald's shares look severely overbought, while shares of Wendy's have been building a base and look prepared to move higher and potentially make up lost ground on the competition.

The base-building has been taking place for the last several months above the 38% retracement level of the 2013 low and the 2015 high, a level that acted as resistance for most of last year. There have been weekly bullish signal line crossovers on both the relative strength index and the volume-weighted money flow index, reflecting improving price and money flow momentum.

On the daily chart, the recent consolidation process formed a triple bottom with resistance in the $9.30 area, and that level was broken this month. The stock price has pulled back to retest that resistance-turned-support, and on Tuesday it formed a bullish engulfing candle. Moving average convergence/divergence is tracking higher and above its centerline, and Chaikin money flow is in positive territory, reflecting accumulation in the stock.

Wendy's is a good risk/reward long candidate at its current level using a position size that accommodates a trailing percentage stop under the 50-day moving average.

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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