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Asset Watch
Thursday, October 31, 2024
It’s been a rough few weeks for McDonald’s, as an E. coli outbreak across 13 US states has consumers concerned about the health impact and investors concerned about the financial impact.
And although the fast-foot giant surpassed analysts’ Q3 earnings and revenue estimates on Oct. 29, CFO Ian Borden said that customer traffic turned negative after the outbreak was reported.
Is the short-term speed bump a buying opportunity or the start of a new downtrend?
CEO Chris Kempczinski said on the third-quarter earnings call that “While the situation appears to be contained, and though it didn’t affect Q3 numbers, it’s certainly an important development.” He added, the company is sorry and is committed to “making this right.”
So, while the developments are bearish for McDonald’s fourth-quarter performance, the bad news may be priced in if the outbreak doesn’t worsen.
While the stock initially popped after the earnings release, $300 has become an area of resistance. The bulls may be cautious in this zone until more clarity emerges on the outbreak and its effects.
Consequently, you should keep an eye on the $280 level, as it aligns with various highs and lows over the last several months.
The 20-week moving average (the yellow line) stands near $281 and creates another layer of support near $280. If more bad news surfaces, these levels could help stem the correction.
With the technicals often providing key clues about a stock’s future direction, there are multiple ways to interpret the price action.
McDonald’s fell below its 10-week MA, but if the rising blue line pushes the stock back above $300, the bull market can resume uninterrupted. If not, and the 10-week MA becomes resistance, a drop to $280 near price support and the 20-week MA may unfold.
As a result, you should pay close attention to how the stock trades around these key areas to determine the best entry point.
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