McDonald's (MCD) shares are about to move higher, technical analysis shows, and this presents a great opportunity for an options trade.
Look at the two strong bullish signals on the current chart.
First is the island cluster. This is a limited number of sessions that have price gaps before and after. A bullish island cluster happens when there's a gap below a stock's recent trading range that is quickly followed by another gap back into range. This signal is as strong as a double bottom formation.
This bullish signal is confirmed by the move above the t-line, which is the eight-day exponential moving average. Whenever a stock closes above the t-line for two or more sessions, it is a bullish indicator. The stock closed the last three sessions above the t-line. It finished Wednesday's session at $119.92.
The timing is excellent for a short-term bullish trade using stock options. Look at the Dec. 16 options, which expire in eight days. The 120 call, which is closest to being in the money, closed on Wednesday at an ask price of 1.13. Including trading fees, this option can be bought for $122. The break-even level on the stock's price is $121.22.
The signals are strong enough to take confidence on this trade to a high level. McDonald's has been on a strong bullish move since the election, moving as high as $121 from $110 in only three weeks. The current price of $119.92 looks like a starting point for even higher levels.