McDonald's (MCD) is showing encouraging signs that a bottom has been reached. The stock has recovered nicely from Friday's selloff and now appears headed for a healthy rebound. If the stock is able to build on yesterday's trendline break investors should be very encouraged.
A day after MCD's powerful post-Brexit rally peaked near $129 the stock took a devastating hit. On July 26 the stock fell nearly 4.5% on extremely heavy trade. This earnings-inspired breakdown, MCD's biggest single day loss of the year, sparked a brutal downtrend.
The stock took out the Brexit low four weeks later and, after a month and a half of sideways action, fell to fresh 2016 lows in mid-October. Once below major support near the $112.85 area further downside was limited. With a divergent MACD (moving average convergence/divergence) developing and selling pressure beginning to ease, this was a very positive development.
This week MCD has retaken the $113 area. This area, which marked the early 2016 lows, could have provided very heavy resistance in the near term. With the stock now above this level, multiple support layers are in place.
Patient MCD investors should take a more positive view of the action as a result. The stock should be considered a buy on weakness. Initial support runs from the $113.30 to $112 area. On the upside, MCD has struggled with its declining 50-day moving average since early September. Moving past the 50-day will be an important hurdle.