McDonald’s Corp (MCD) shares rallied early during the U.S. session after reporting fourth quarter earnings that were driven higher with all-day breakfast sales helping recapture back market share. Fourth quarter earnings came in at $1.31a share, much higher than the analyst consensus of $1.23. Revenue also impressed with a $6.34 billion, better than the forecasted $6.23 billion. Shares rose as high as $123.72 before erasing most of its gains and closed only $0.80 higher on the day to $119.20. The company expects continued positive top-line momentum globally in 2016. Despite beating analyst expectations and having same-store sales surge 5.7%, concerns remain breakfast sales will continue drive the future growth in the long-term.
Price action on the MCD daily chart shows the initial surge formed a bearish ABCD pattern. Point D is targeted with the 141.4% Fibonacci expansion level of the B to C leg. Additional resistance also came from the trendline that started with the August 21st low of $87.50. If this reversal pattern continues, key support may come from the 50-day SMA, which currently trades around the $116 handle. A daily close below this noted support level could open the door for a further drop towards $109.50.
If the current slide is short-lived, initial resistance will come from today’s high of $121.90. Further resistance will come from the $124.70-125.00 zone.
The Trade: Sell MCD at $120.50, with a stop loss at $122.50 and a take profit at $116.50. The Risk/Reward Ratio is 1:2