Is It Too Late to Buy McDonald's Stock?

Dow component McDonald's Corporation (MCD) is trading at an all-time high above $218 in Friday's pre-market after reporting in-line second quarter earnings per share (EPS) of $2.05 on $5.34 billion in revenues. Quarterly revenues met estimates despite falling 0.2% year over year, indicating a strongly competitive fast food environment, even though year-over-year global and U.S. sales rose more than 5.5%.

The stock performed well in the first half of 2019, lifting more than 16%, and it has added another 6% so far in July. It is quickly approaching the top slot in Dow component performance, carving a seemingly endless series of all-time highs despite international political tensions that have tarnished the American brand. Apparently, hungry eaters from all political persuasion around the world are still eating plenty of Big Macs and fries. 

MCD Long-Term Chart (1990 – 2019)

A powerful uptrend during the 1990s posted steady gains, splitting twice while the stock rose from the single digits into the March 1999 high at $47.38. A breakout attempt a few months later failed, completing the last stage of a double top pattern that broke to the downside in February 2000. The subsequent decline unfolded in two major selling waves, finally ending at a 10-year low at $12.12 in 2003.

A healthy bounce during the mid-decade bull market carved through multiple resistance levels, completing a 100% retracement into the 1999 high in 2007, ahead of a breakout that stalled in the mid-$60s at year end. The stock held new support during the 2008 economic collapse, exhibiting resilience that set the stage for a 2010 uptrend that stalled just above $100 in the first quarter of 2012.

That peak marked resistance for more than three years while the Dow rose more than 5,000 points, dumping the fast food giant to the bottom of the performance list. It awoke from its slumber after 2015's introduction of the highly popular all-day breakfast, breaking out in a historic advance that carved two corrections into the 2018 high at $191. Price action cleared resistance in April 2019, posting a series of new highs into Friday's all-time high above $218.

The monthly stochastics oscillator crossed into the overbought zone in November 2018 and set off a sell signal in January, but the bearish cycle failed, lifting the indicator to the same level that preceded reversals in 2011, 2013, 2015, and 2017. This cyclical behavior predicts the stock is getting close to another downturn, but so far at least, the monstrous uptick since March 2018 has been technically bullet-proof, rewarding aggressive positions.

MCD Short-Term Chart (2017 – 2019)

The on-balance volume (OBV) accumulation-distribution indicator posted an all-time high in April and a lower high in November. The 2019 uptrend has failed to pierce the lower barrier, setting off a bearish divergence, indicating that a lack of sellers has been just as efficient as buying power in lifting to the stock to new highs. However, only a small catalyst is now needed to trigger a reversal and multi-week correction that could test support at the 200-day exponential moving average (EMA).

A Fibonacci grid stretched across the 2018 correction places current price action between the 2.000 and 2.3820 extensions, well above price levels that typically generate reversals. The next harmonic resistance lies at the 2.618 extension near $230, or about 10 points above Friday's pre-market action. In any case, there's much greater risk than reward at this juncture, warning sidelined investors about taking the plunge and buying the stock after this morning's confessional.

The Bottom Line

McDonald's stock is trading at an all-time high after the fast food giant met second quarter estimates, but the rally is getting long in the tooth, raising the odds for an intermediate correction.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.