McDonalds MCD Hard Fall to Daily Support

Dec 9, 2010: 5:20 PM CST

While scanning the stocks in the Dow Jones Index just now, a particular move in the stock price of McDonalds caught my eye that I wanted to share.

Let’s see the creeper power-up trend that gave-way to a ‘hard fall’ to a key daily support level.

It’s a good example of watching support as it develops.

Since the early August price breakout from the $70 level, share have been in a stable uptrend contained by the rising 20 day EMA as support all the way up.

The 20 day EMA is a great low-risk entry point (trail the stop under the 50) in the context of creeper-up trends like this.

Price also has been contained to the upside by a weak rising trendline, and we could say the price is rising in a stable trend contained within parallel trendlines or trend channels.

That’s neat and all, but the dynamic might be shifting, as evidenced by the three recent breakdowns under the stable 20 EMA and ‘slam’ into the support of the rising 50 day EMA as shown.

While the other two drops to the 50 EMA were rough, today’s could be described as a stone-drop to the key support level.

It’s support because it’s held in the recent past but it also forms a near confluence with the lower Bollinger Band at the “round number” price level of $77.

It’s definitely something to keep your eye on if you’re trading or investing in this stock – a key bellwether for the retail fast food industry.

Going beyond price and moving averages, we see a spike in sell or downside volume (volume counted on down days) as well as a visual negative momentum divergence – both of which are bearish.

If $77 holds as support, then expect the trend to continue its melt-up (like cheese on a hamburger?) but in the event sellers push price down through the dual support at $77, look to the weekly chart for the next likely target to play for.

MCD Weekly:

Stated as simply as possible, look for the next level of support under $77 to come in at the $75 level – it’s the rising 20 week EMA.

Of course, if $75 comes in to play and fails to hold support, we could see a fall back to $70 to test THREE levels of key support:

The 50 day EMA, the Lower Bollinger Band, and the Prior Price Resistance Zone – all at $70.

Again, going beyond price, we see a similar non-confirmation (negative divergence) both short-term and long-term in both momentum (3/10 Oscillator) and Volume.

That’s not bullish, but none of those bearish targets come into play if the trend continues and supports at $77 – or alternately at $75.

The charts above in MCD serve a good lesson in trend continuity and EMA support in the context of a lengthy trend in a leading Blue-Chip stock.

Corey Rosenbloom, CMT
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