McDonald's Investors: Watch These Charts

JC Parets’ Eagle Bay Capital analyzes 30 Dow companies every week. In last week’s report, he dug into two McDonald's Corporation MCD charts.

Structurally, the firm has been neutral and waiting (even hoping) for “some consolidation around the 200 week moving average which also represents the lows from February.”

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In addition, “with momentum putting in a bearish divergence at this year's highs, overhead supply from broken trendline resistance and relative strength still in a strong downtrend,” they consider that a more neutral stance is still best.

Parets sees no reason to act, structurally.

He prefers, instead, a more tactical look: “This thing is all over the place and I see zero reason to be involved structurally. The recent developments, however, are positive and a 4th test of this overhead supply from since 2011 would argue for an ultimate breakout to new all-time highs that we want to be buyers of.”

Until then, he'll wait patiently and focus on the daily chart for a more tactical approach.

Short-term, the stock hit Eagle Bay’s upside target in November near $97, “where we have former support/resistance, downtrend line from Spring highs and flat/declining 200 day moving average - and then rolled over nicely."

Then, in early-December, the stock briefly broke below October support, but then rallied back.

Parets’ recommendation: “Momentum is giving us mixed signals here and I we've preferred to stay away from this name, particularly with a downward sloping 200 day. We said that a bullish development would be a breakout above 97.50 and we got that last month. I would be a buyer of weakness but only above the December highs. The next target is last years highs just under 104, but I would much rather be in this name once the 200 day turns up.”

He concludes: “It is hard for a sustained rally with this much downside pressure driven by that declining 200 day. We only want to be in this above the December highs and above a rising 200 day. We currently don't have either.”