McDonald's (MCD) - Get Report is on the verge of a fresh down leg. The stock is under pressure as a new week begins and is trading just above the October lows. A clear break of this level could open up the door to a very deep selloff. In the near term, the $112 area is a key level to watch.
Back on July 26, the restaurant chain suffered a damaging breakdown. The stock opened that session with an ugly earnings inspired downside gap. McDonald's has been struggling to regain its footing since then, while taking out a layer of solid support along the way. In late August, the stock began to show signs of stabilization after holding near the June low. For the next six weeks, the stock moved sideways in a narrowing range as overhead pressure continued to build. This month, McDonald's is headed for its third consecutive lower monthly high, while taking out both the August and September lows. The stock looks very vulnerable now.
In the very near term, McDonald's bulls should keep a close watch on the $112 level. A clear break of this area would take out the November and December 2015 lows, as well as the January lows. Once this major support zone is taken out, there is very little support in place for McDonald's. A drop all the way down to the $104 to $105 area is likely. If the stock can build a base here, while returning to oversold status, it would create a very low risk entry opportunity for patient bulls.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.