For a while now, I have been looking for a reason to get involved with a McDonald’s short, but have not yet gotten a good trigger. The stock has certainly treated investors well, dating back over a decade to when they had PR issues from hell, what with the Super Size Me scandal and lawsuits galore. However, management rallied and so did the stock, impressive, from a low of $12 to a recent high of $103.
After a steep run like that, we are now seeing some wide-ranging price action, dating back to last summer. You might call it a large “M” topping pattern (or Golden Arches, like @ReformedBroker suggested on Twitter a few weeks back).
On the first chart below of the daily, even with signs of distribution (heavy selling by institutions), it is hard to short with conviction unless the stock takes out $98 to the downside. Even loose and sloppy patterns after prior steep uptrends do not always resolve lower. But they are reason enough to look for an opportunity.
With McDonald’s most recent rally over the past week, clearly you can see that devoted investors are not giving up such a monster without a strong fight. It’s been a great run and recovery over the past decade for McD’s, as you can see on the monthly chart, second below. But now is usually when it is correct to look for cracks in the foundation.
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