The Dollar Index And McDonald's Corporation

It is no secret that the Dollar Index (symbol: $DXY) is under pressure as concerns are mounting that the only way out of our debt dilemma is for our government to devalue the currency.

With a monthly close below the simple 10 month moving average, my Dollar trading model is set to give a sell signal. I first went bullish on the Dollar Index back in August, 2008. Although the model is generating a sell signal, the real question that I have on my mind is what kind of downside pressure we shall continue to see in the Dollar Index in the coming months.

First, let's say I would become constructive on the Dollar Index on any monthly close greater than the simple 10 month moving average. However, any gains following such an event would likely be sub-par as the technical and secular winds currently are not in the Dollar's favor. That's the easy part.

The hard part is assessing how fast and how low the Dollar Index can go once we get the current sell signal. Figure 1 is a monthly chart of the Dollar Index, and for "practical" purposes -because everyone will be watching - we can use $80 as our current line in the sand. As I write, the Dollar Index is right at $80. The previous thrust up (labeled with red down arrows) is a lower high, so the move from August, 2008 to May, 2009 appears to be a cyclical rally in an ongoing secular bear market. Based upon this, I would look for a break of $80 and test of the lows at $71.

Figure 1. $DXY/ monthly

A weekly chart of the Dollar Index is shown in figure 2, and this quasi -head and shoulders top is shown. The neck line is at $80.74, and this should continue to provide resistance. A projection of this pattern will take prices to the $71 level.

Figure 2. $DXY/ weekly

While the Dollar Index was getting smacked last week, McDonald's Corporation (symbol: MCD) was bucking the trend of the overall equity market and rocketing higher. MCD was up almost 7% for the week on very little news. There was an analyst upgrade from Deutsche Bank AG citing “compelling valuation” and “attractive” cash flow. Maybe this was his way of saying that McDonald's would benefit from a falling dollar.

As an aside and for newer readers to this blog, McDonald's is a stock I have been following since the beginning of the year when I identified it as "dead money" despite the accolades and cheerleading over at CNBC.

A monthly chart of MCD is shown in figure 3. A monthly close above the pivot low point at $57.93 would be bullish and reverse the bearish trend. A monthly close above $62.19 would be uber-bullish and likely launch MCD on a long bullish trend. MCD has been consolidating in a tight range over the past 18 months and this represents an appropriate launching pad for a bullish run.

Figure 3. MCD/ monthly

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.

McDonald's: McRoyal Flush

This is from the Department of Better Tools.

McDonald's Corporation (symbol: MCD) is down 3.5% today on no corporate news. Well, the only news is Cramer calling this a buying opportunity, but isn't that what we have come to expect from our so called "experts"?

In any case and for the record, I made the sell call on January 16, 2009 when MCD was at $58. MCD is down below $53 today.

For those looking for a fundamental bent, strength in the US Dollar and poor economic growth overseas should continue to keep pressure on MCD.

Based upon the technicals, I believe MCD has put in a top of significance, and for long only investors, it is "dead money". A weekly chart is shown in figure 1, and in all likelihood, prices will bounce from these support levels, but I still believe a $45 price target is reasonable.

Figure 1. MCD/ weekly

McDonald's CEO On CNBC

When I wrote last night's article, I really had no idea that the CEO of McDonald's Corporation (symbol: MCD) would be on CNBC this morning. Of course, CNBC was out touting the stock as the Dow's best performer last year. If I was an investor, this would make me nervous as CNBC has a way of jumping on the bandwagon just as the party is ending.

I came to my "call" on McDonald's because I was just looking at the charts, and I found it kind of interesting that McDonald's is the only Dow component that has not succumbed to the bear market. Once again, McDonald's has the technical characteristics of a stock putting in a secular top.

Below is a link to a video from CNBC and it is with McDonald's CEO and Vice Chairman, Jim Skinner. Mr. Skinner discusses the prospects for his business and the economy. I have no axe to grind here, yet it will be interesting to see who is right- the CEO or the chart.

To see the video, please click on this link.

The Dow 30 And The Last Man Standing

Take about 20 minutes and review the charts of the component stocks that make up the Dow Jones Industrial Index.

The financials (AXP, BAC, C, JPM) are in a free fall. Only JPM remains above its 2002 lows.

The industrials (AA, DD) are basing after the fourth quarter free fall and are trading at their 1994 lows.

The pharmaceuticals (JNJ, MRK, PFE) are mixed. JNJ has gone nowhere for 7 years and while at the bottom of its range, it is not going anywhere soon. MRK is at the bottom of a 4 year range. PFE remains in a 7 year downtrend, but it has the technical characteristics of a stock that may lead to a secular trend change, so this is worth watching.

The conglomerates (GE, MMM, UTX) don't look so good either. UTX is the best of this lot as it holds above the 2002 lows. MMM is above its 2002 lows but it has broken a long term trend line going back to 1994. GE looks scary as it below the 2002 lows and appears to be in a free fall to $10.

The manufacturers (BA, CAT, GM) are up next. BA looks set to fall from its current price of $41 to the lows set in 1998 and 2003. CAT, which is now at $39, has a lot of support at $30. GM should be at zero, but Congress has seen otherwise. It does have the technical characteristics of a stock poised to end its downtrend, so I guess when you sum it up: GM isn't for the faint of heart.

The energy giants (CVX, XOM) broke down in July, 2008, and they recently retraced those loses to their down sloping 40 week moving averages. They are rolling over.

Retailers (HD, WMT) are retailers and going nowhere fast in this economy. HD is near its 2003 lows and it does have the technical characteristics of a stock that is poised for a trend change. Look for a bounce. WMT, despite being every one's favorite store, remains in the middle of an 8 year trading range. It is nowhere.

Technology (HPQ, IBM, INTC, MSFT) doesn't get me excited either. IBM is sitting at the bottom of a trend line drawn from the 1993 lows. INTC is back to the 2002 lows, which probably represents a good low risk entry point. The same can be said for MSFT, which is at the very bottom of an 8 year trading range.

Communication giants (T, VZ) aren't my cup of tea, but these stocks have bounced at their 2002 lows.

So who is left? DIS needs to base. KFT is at the bottom of a 5 year range near its all time lows. KO has done nothing for 10 years. PG has rolled over and is beginning a down trend.

That's 29 stocks, and not much happiness for investors.

So who is missing and who is that "last man standing"? It is McDonald's Corporation (symbol: MCD). A monthly chart is shown in figure 1.

Figure 1. MCD/ monthly

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 breathren. The technical negatives for MCD include: 1) multiple negative divergence bars (pink markers on price bars); and 2) upward sloping trend line breaks. A close below the 10 month moving average should provide confirmation of a top with prices falling to $45.

MCD will not avoid the scourge of the bear market.