Stock Of The Day: Will McDonald's Finally Reverse Bearish Trend?

When stocks are going down, buyer's remorse rules the market. Traders and investors purchase shares only to lose money when the price heads lower. Not surprisingly, they regret their decision to buy.

When a stock finally reaches a bottom, buyer's remorse gradually fades until there is no more. This important market dynamic may be about to appear on the chart of McDonald’s Corporation MCD, which reported earnings Monday morning. That is why McDonald’s is our Stock of the Day.

When prices move lower, some of the traders and investors who bought shares become remorseful. And some of them decide to exit their positions. But many of them will only do so if they can sell them at breakeven.

As a result, if the shares reverse and move back up to the same price at which investors bought them, they place sell orders. And if there are enough of these orders at or close to the same price, it will cause resistance to form.

As you can see on the chart, the $284 level was support for McDonalds in February. Then the support was broken. Next, it found support at $277 and moved higher.

Read Also: Nasdaq Gains 1%; McDonald’s Posts Downbeat Results

It then ran into resistance around $284. Remorseful buyers who purchased their shares around $284 formed this resistance with their sell orders.

After the support at $277 was broken, McDonald’s found support next at $26. Then it rallied back to $277 and ran into resistance there. The same thing occurred at $277 that did at $284.

Now the $263 level has become resistance after the company’s earnings report. Once again, a price level that had been support has turned into resistance due to buyer's remorse.

If the stock can break through it, it will illustrate an important psychological trading dynamic. It will mean that buyer's remorse is fading out of the market. It could indicate the beginning of a new uptrend.

But if not, there's a good chance that McDonald's reverses and moves lower yet again, meaning the downtrend that began in January will remain intact.

Read Next:

Wall Street Rises Ahead Of Big Tech Earnings, Fed Meeting; Tesla Rebounds, Oil Prices Drop To 7-Week Lows: What’s Driving Markets Monday?

Photo via Shutterstock.