Mapping the Market: Beaten-down McDonald's stock may be ripe for a rally
By Terence Gabriel
Oct 29 (Reuters) - Shares in McDonald's MCD.N have fallen 18% this year, putting the stock on track for its worst annual performance since 2002 as consumer discretionary stocks struggle broadly. The trend looks ugly, but technical analysis suggests a rebound is possible.
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Click here for a detailed technical analysis chart.
Technical analysis uses charts of past price moves to map out where a market might go next. Analysts look for support, a level that acts as a floor for prices in a falling market. They also look for resistance, the opposite of support, which acts as a ceiling when a stock is rising.
To find these levels, analysts often use moving averages. These smooth out price swings by averaging prices over a rolling period, which reveals the underlying trend. Trendlines are another source. These are diagonal lines connecting key price points, and they can slope up or down. Previous highs and lows can also act as support or resistance.
Analysts also use chart patterns. One is a gap, which appears when a stock moves so abruptly that it leaves a blank space on the chart where no trading took place. Another is the Fibonacci retracement, a percentage-based calculation of levels a market often revisits after a big move.
However they are derived, these levels can become targets for traders. When a stock stops falling at support, analysts consider whether it might change direction.
That is what happened with McDonald's. By early October, the shares had fallen to $229.20. That level was close to the 50% retracement of the stock's March 2020 to March 2026 advance at $232.99, meaning the shares had given back half of that gain. The slide stalled there, a key sign it might be due for a rebound.
Analysts use momentum gauges to judge whether a decline can last. One is the Relative Strength Index, or RSI, which measures the speed and size of price moves. A reading below 30 is often seen as a sign of excessive selling, or an "oversold" market. McDonald's monthly RSI fell to 25.49 in September, its lowest since March 2003.
By the start of October, the stock had also fallen for eight straight weeks, its longest losing streak since a nine-week slide that ended in July 2002. Together, these signals suggest the shares were ripe for a bounce.
McDonald's closed Wednesday at $250.50, according to data supplied by LSEG, and is on pace for a fourth straight weekly gain. A rise above a downward-sloping trendline drawn from the March peak near $253 could open the way to $258, near the 89-month moving average. Beyond that, the next target is $283, near the 55-month moving average. That average acted as support for more than two decades before it broke in May and turned into resistance. A monthly close above it would strengthen the case for a return toward record highs.
If the slide resumes, support sits near $246. A drop below that could expose a daily price gap near $238. If the October low of $229.20 gives way, support emerges at $218 to $222, then $212. Below that, major long-term support lies at the 233-month moving average, just above $160.
McDonald's did not immediately respond to an email requesting comment.
What the chart shows:
McDonald's is down 18% this year but has rebounded from support near $233
A rise above $253 opens the way to $258 and $283
A slide would target support near $246, then $238, $229.20, the $218 to $222 area and $212
(Mapping the Market is a daily column written by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. The column does not constitute investment advice or trading recommendations. )