Is McDonald’s Stock Finally a Buy?

T = Technicals on the Stock Chart are Strong?

Stock charts can be a very controversial issue among investors. Some view it as simply junk science, while others believe it can be very helpful when making investment decisions. We believe technicals can be useful when taken into consideration along with fundamentals. Technicals often reflect investor sentiment and trader psychology.

As the chart below shows, investors turned cold on shares following the quarterly numbers and October sales decline announcement. McDonald’s gapped lower through its 50-day moving average and eventually hit a closing price of $84.05 on November 15. As we noted on October 19, McDonald’s has seen support between $84 and $86 over the past year, and a successful test of this range may signal the end of the most recent decline. This proved to be the case in June when shares dipped below $86 and the Relative Strength Indicator briefly fell below 30, which is considered oversold territory.

Although the stock market is still hostage to headline volatility from Congress and Europe, it is very encouraging to see McDonald’s find support in this range. We suspect that more broad equity weakness would affect McDonald’s in the short-term, but longer-term support remains near $80.

Investor Insight: Special Dividends for a Special Fiscal Cliff