MCDONALDS STOCK HOLDS KEY SUPPORT AND STARTS TO BOUNCE – THE START OF A BIG MOVE HIGHER?

McDonald's Corp MCD had been in a free fall since the May peak just north of $102 per share. However, after hitting a low of $90.53 on September 10th, “Mickey D's” has begun to rally. Can this hold of key “abc correction support” be a springboard to months and possibly years of relative outperformance for the bulls? Much of that will have to do with the company's ability to either ramp up international expansion or innovate and improve their same store sales with a new approach to their products and services – or perhaps both. What the bulls see in MCD… • An attractive dividend of 3.4% • Attractive net profit margins of 19.48% • Positive levered free cash flow of over $4 billion annually • A price-to-sales of only 3.3 • A stock that, despite its bout of relative weakness over the last months / years, managed to hold up above its long-term uptrend line support What the bears see in MCD… • A high level of debt as its debt-to-equity ratio is 95.52 • A stock that is a bit pricey when you look at their price-to-book of 5.77 and/or their price-to-earnings of just over 16 – which is only expensive when compared to flat revenue growth estimates and earnings growth estimates of around 8 percent. • A stock that has been showing relative weakness versus the market for an extended period of time now – possibly signifying underlying operational issues at the company The technical take… Technicians note that McDonald's stock may have just completed an “abc” correction to the downside at just above $90 on September 10th – although based on the monthly chart, the stock could drop as low as $89.95 without breaking the Fibonacci “correction support” for the “abc” formation. From a long-term perspective, McDonald's could now work its way to the upper edge of the long-term uptrend channel at around $120. On the other hand, a break and close below $89.95 would lead to a move down to the low to mid-$80s. Overall… This seems to be a good opportunity to try the long side in McDonald's. After all, would you rather buy a mammoth fast-food, slow growth stock like this near the highs or just after a nice pullback in prices? The key here is to enter as close to the $90 level as possible and then be prepared to hold on to the stock for many months as it works its way up to the projected target near $120 – all the while collecting the 3.4% dividend.