The weekly chart shows the rapid rise in the stock after it broke out of a long-term horizontal channel consolidation at the end of last year.
This week a large red candle formed, reflecting a nearly 5% decline in price and returning the stock to the 20-period center line average of its current Bollinger band range. This same price action occurred earlier in the year as the stochastic oscillator moved lower and out of its oversold zone, and moving average convergence/divergence made a bearish crossover. That following week, the center line of the weekly band range was tested and held, and a large bullish reversal candle formed reengaging the primary uptrend.
Those same momentum indicators are sending negative signals again as the 20-week average is being retested, but this time there is an additional negative component in the technical picture. In February, the accumulation/distribution line was tracking above its 21-period signal average, and Chaikin money flow, a money flow measure that uses the A/D reading as a baseline, was above its signal line and well into positive territory. The stock was under heavy accumulation at the time, but now the accumulation/distribution line is about to cross below its signal average, and Chaikin money flow is tracking lower, signs the stock is experiencing selling pressure.
On the daily chart, the run initiated by the channel breakout has formed a well-defined uptrend line that tracked along with the rising 50-day moving average, but it was broken in Friday's session. The MACD has been in bearish divergence to price since early April, suggesting an underlying issue with price momentum, and the vortex indicator, which is designed to identify shifts in trend, made a bearish crossover last week. Accumulation/distribution on this timeframe has crossed below its signal average, and Chaikin money flow has been negative for the last month. The stock was under distribution prior to the trend line breakdown, and that is likely to accelerate now that it is confirmed.
McDonald's is a short candidate at its current level using an initial stop above the $125 level with a price target projection to the 200-day moving average, which is nearing the 38% Fibonacci retracement level of the channel low and 2016 high range.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.