The last time I visited the golden arches of McDonald’s Corp. (MCD) was the end of January, and I summed things up this way: “The charts of MCD are not bearish. Can MCD decline a bit more? Sure…Will it quickly rally to new highs? That is also possible, but let’s raise stop loss protection to a close below $160 or below the rising 200-day moving average and see how things play out. $200 is still our upside price target.”
Looking over the action of the past two months you would have liquidated your longs in early February avoiding a deeper decline to around $146.
Prices have since firmed back up and Thursday we closed above the flattening 200-day average line and the declining 50-day line. Do we have an all clear signal to repurchase MCD? Let’s check deeper.
In this daily bar chart, below, we can see some other clues. We just said that MCD closed back above two popular moving averages but the 50-day line is crossing below the 200-day line for a bearish dead cross. We have often seen these “crosses” whipsawed as the signals come late. The volume of trading in MCD has been heavier than in some time and the daily On-Balance-Volume (OBV) line has risen to a new high for the move up. The OBV line can lead prices and this new high could be foreshadowing new price highs for MCD. In the lower panel is the 12-day momentum study, which shows a bullish divergence with higher lows from February to March in contrast to the lower lows of price at the same time.
In this weekly bar chart of MCD, below, we can see longer-term patterns. Prices have rallied just above the flat four-week moving average line and a higher close today (Friday) could give us a close above line; however, a rising 40-week line is more bullish. The weekly OBV line shows improvement the past two months but not yet a new high. The weekly Moving Average Convergence Divergence (MACD) oscillator is narrowing toward a potential cover shorts buy signal.
In this Point and Figure chart of MCD, below, we can see that a trade at $165.07 would be an upside breakout and could open the way for a rally to $179, or a new high.
Bottom line: The chart and indicators of MCD have improved a lot in the past two months with the OBV line leading the way. Aggressive traders could probe the long side of MCD on a close above $165 risking just below the support or under $155. Let’s see if we can make a new high at $180 and keep going.