Thursday, April 30, 2009

McDonald's: From Market Leader To Market Laggard

Let's flashback to January and February, 2009 when the market was in a swoon and McDonald's Corporation (symbol: MCD) was the market leader.  The CEO was on CNBC, and Jim Cramer was doing his (usual) "buy, buy, buy" thing.  For the cheerleaders at CNBC, McDonald's was that go to stock - the beacon of light in a sea of ugliness.  

As I wrote on  January 15, 2009, I saw things a bit differently:

So why do I call MCD the "last man standing"? MCD remains near its all time high, and it is the only stock in the Dow 30 that really has not been effected by the bear market. It is the "last man standing". I bring MCD up because I believe it is putting in a secular top and on its way to joining its brethren.

Now let's fast forward two months, and we all know that the markets have been on a tear. The Dow Jones Industrials gained 15.65% over this time period.  McDonald's?   McDonald's has gained a paltry 1.99%.  

The 'last man standing" is now trailing the pack - badly. 

And I believe this leaves McDonald's very vulnerable to broad market weakness, which has a high likelihood of occurring over the next couple of weeks.  Figure 1 is a monthly chart of MCD.  The multiple negative divergence bars (labeled with pink markers) and the monthly close below the low pivot at 57.93 signaled a secular trend change for MCD.  This past month, despite the bullish tone of the broader market, MCD closed below another pivot low point (at 53.58).  This is bearish.  

Figure 1. MCD/ monthly

Lastly, let's thanks the good folks at CNBC for providing me with excellent and timely investing ideas.  Also, let's give Jim Cramer an honorable mention for reminding me to do my homework.


Anonymous said...

on a related note.....a good tell for the markets may be the restaurant sector as a whole.....lots of 100%, 200% moves off the lows for some names.

despite the big moves off the lows a lot of these names have lots of debt to refinance and still at the whims of discretionary spending.

Guy M. Lerner said...

Anonymous: the mid level restaurants have done very well - like CAKE, Darden, CPK etc. Folks are eating out still but maybe not as frequently or at the upper end plus input costs are down too.

McDonald's seems to be a play on the Dollar and overseas growth. A strong dollar is not good for MCD nor for overseas growth.

Bill said...

Thanks for pointing this out. It is attempting to close below its long term demand line now. For me the most recent 50% retracement rally after its last visit to the demand line would have been a perfect sell point. I would now like to see it break below the bottom of the huge trading range dating back to Dec07 before selling. It has good downside potential.