Dow Stock Flashes Short-Term Trade Opportunity

The stock's 320-day moving average has had bullish implications in the past

Jun 22, 2018 at 10:19 AM
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The Dow has underperformed this week, dragging several blue-chip stocks down with it. Shares of McDonald's Corporation (NYSE:MCD), for instance, are pacing toward a more than 2% weekly loss. However, the equity has now pulled back to its 320-day moving average, and previous occurrences have preceded healthy gains for MCD.

According to Schaeffer's Senior Quantitative Analyst Rocky White, there have been five other times in the last three years that MCD stock has come within one standard deviation of its 320-day moving average after a significant stretch above it. The shares have gone on to average a one-month gain of 5.6%, with 80% of those returns positive.

At last check, MCD shares were up 1.3% at $162.83 in early trading -- bouncing alongside the Dow and fellow fast-food stock Chipotle (CMG). The stock has added 11% since its last test of its 320-day moving average back in early March, with recent support emerging near $159-$160, which is a 38.2% Fibonacci retracement of its first-quarter plunge.

mcd stock price chart on june 22

Options traders have been quick to target more upside for MCD in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 2.86 ranks in the 98th annual percentile, meaning calls have been bought to open over puts at a quicker-than-usual clip.

It looks like a relatively attractive time to buy premium on McDonald's, too. The stock's Schaeffer's Volatility Index (SVI) of 17% ranks in the 32nd annual percentile, indicating short-term options are pricing in low volatility expectations at the moment.

 

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