Moby Waller Believes McDonald's Could Breakout


The fast-food restaurant behemoth McDonald's (NYSE:MCD) reported same-store year-over-year sales growth of 2.2% yesterday.  This news caused the shares to move lower as it didn't match up well to last year's numbers.  MCD has not really participated in the market rally since March ... on the other hand, it didn't get crushed in the market selloff from September 2008 to March 2009.

By Moby Waller ( -- dtw091009mcdaIf you take a look at the longer-term MCD Weekly Chart below, you can see that it is forming what could be called a "sideways triangle" formation.  This is due to lower highs and higher lows, forming a narrowing range of movement and volatility.  The Band Width Indicator at the bottom of the chart shows the narrowing range of the Bollinger Bands, also indicating the decreasing volatility.  This type of formation is often a "coiled spring" which precedes a major breakout OR breakdown in a stock, index, commodity, etc.

What direction will MCD break?  Well, there are reasons it could go in either direction.  The technicals on the stock aren't great ... if you look at the MCD Daily Chart below, you can see that it has been in a steady downtrending channel (straight red lines) since June.  Additionally, Percent R is very low and is breaking below the 20 level, which is generally bearish by our analysis methods.  Downside risk looks to be capped around the 50 level, where there is significant technical support.

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