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This column was originally published on RealMoney on Oct. 16 at 12:00 p.m. EDT. It's being republished as a bonus for readers.

Forget motherboards and routers -- burger joints are the real place to be in this hot October market. Fast-food stocks are in a voracious uptrend that shows few signs of letting up, so let's see how Mickey D's and company might add a few healthy pounds to your bottom line.

Many fast-food stocks bottomed out ahead of the broader market last summer, which makes sense considering that they serve two distinct purposes in the market machine: They're defensive issues that should outperform in a slowing economy, and they're also growth stocks, because the worldwide appetite for junk food shows no limits.

The growth potential was highlighted in jaw-dropping fashion last week when

Yum! Brands

(YUM) - Get Yum! Brands, Inc. (YUM) Report

reported that sales in China would generate almost $300 million in profits and grow by nearly 40% in 2006. This suggests the Asian connection will present massive opportunities in the fast-food industry for many years to come.

Perhaps you know this company better by the chains it owns and operates: KFC, Taco Bell and Long John Silver's. These household names are showing up in remote corners of the world that were previously out of reach of the high-fat delights.

Of course, not everyone is thrilled by the introduction of these oh-so-American icons.

Consider the hysteria this summer after an environmental group in India alleged that


(KO) - Get Coca-Cola Company Report



(PEP) - Get PepsiCo, Inc. Report

drinks were contaminated with pesticides. The companies eventually debunked this anti-American nonsense, but not before they lost millions of dollars in local sales.

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Clearly, fast-food operations face similar risks as they grow into countries where native ideologies and palates differ greatly from our own. But if other American icons like


(SBUX) - Get Starbucks Corporation Report



(WMT) - Get Walmart Inc. Report

are any indication, the world's pathological appetite for burgers and fries will overcome all local objections.



readers order fast-food stocks after their powerful run off the summer's lows?

Let's see what the charts have to say.

Yum! topped out in early 2005, following a two-year run to an all-time high at $53.56. That level marked considerable resistance until it returned there for the third time in September. The stock hovered there for several weeks and then broke out on heavy volume after the bullish China news.

Big patterns should yield big trends. This suggests that last week's breakout started a fresh uptrend that could last months or years. Downgrades from JPMorgan and UBS hit the stock at the end of last week, triggering a pullback that appeared to be continuing Monday morning. This should offer an excellent chance to jump on board.


(MCD) - Get McDonald's Corporation (MCD) Report

ran in place under $40 during its recent divestment of


(CMG) - Get Chipotle Mexican Grill, Inc. Report

and then broke out when the process was completed. The stock gapped higher Thursday after raising its third-quarter guidance. This news should help the stock hold new support in the weeks ahead.

The longer-term chart shows stiff resistance near $47 -- that would be a good place to take profits if the rally continues in the fourth quarter.

Should buyers pick up the stock now, or wait for a pullback? This is options-expiration week, an unfavorable period for stocks at new highs, so a better opportunity to buy could arise later this month.


(WEN) - Get Wendy's Company Report

rallied to a new high at $31.08 in March and pulled back in a moderate correction. It found support at the 50-day moving average and returned to the high three weeks ago. The stock gapped higher immediately and hasn't looked back since. It also benefited from the late September spinoff of its

Tim Hortons



I wouldn't chase the stock here. There are better entry points in other fast-food issues and this one could start an intermediate correction at any time. But Wendy's should offer a decent buying opportunity on any pullback that approaches $30. That level might come sooner than expected if the broad market starts to consolidate its recent gains.

Red Lobster and Olive Garden owner

Darden's Restaurants

(DRI) - Get Darden Restaurants, Inc. Report

has the right pattern but all the wrong indicators. It recently climbed above resistance at $43 and is trading at a new high. But on-balance volume shows a bearish divergence that reveals quiet distribution, while longer-term relative strength is turning south.

This is a fairly reliable setup for a failed breakout, but wait for the right signal if you want to sell it short. That would come on a high volume, wide-range selloff that drops it back to $42. Conversely, the stock might just move sideways for two to four weeks and finally pick up the buyers it needs for a healthy uptrend.

I'll follow up on Tuesday with another helping of six fast-food stocks to sink your teeth into during this reporting season.

At the time of publication, Farley held none of the stocks mentioned, although holdings can change at any time.

Alan Farley is a professional trader and author of

The Master Swing Trader

. Farley also runs a Web site called, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback;

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