Red-Hot McDonald’s Stock Stares Down Big Week Ahead

MCD’s 200-day moving average acted as a springboard back in mid-March

Managing Editor
Apr 28, 2023 at 9:05 AM
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Subscribers to Chart of the Week received this commentary on Sunday, April 23.

Burger King dominated the airwaves earlier this year with its dreadfully catchy ‘Whopper’ jingle, curated by none other than famed movie composer Hans Zimmer. While that song may still be stuck in your head, McDonald’s Corp (NYSE: MCD) has been quietly climbing the charts. What’s next for the fast food giant?

MCD is heading toward a sixth-straight weekly win, and on Friday scored a record high of $292.32. McDonald’s stock has toppled its $200 billion market cap level, per the charts below from Schaeffer’s Senior Market Strategist Chris Prybal. Note how MCD took five years to topple $100 billion, and this area then served as support during the Covid lows of 2020. The $200 level was first tested at the end of 2021 and start of 2022, but in the span of just 12 months, MCD has already found some serious separation.

MCD Market Cap 100

MCD Market Cap 200

Shorter term, MCD’s 200-day moving average acted as a springboard back in mid-March, before the aforementioned rip. Now comes the challenge of maintaining this momentum ahead of the company’s first-quarter earnings report, due out before the market opens on Tuesday, April 25.

MCD Stock Chat COTW

The good news is MCD has a rather quiet history of post-earnings reactions in the last two years. Only three of the last eight reports featured post-earnings moves to the downside, while MCD added 2.9% after last April’s report. Overall, the equity averages a post-earnings move of only 2% -- regardless of direction – during this time frame. For Tuesday’s trading, the options market is pricing in a slightly larger-than-usual move of 3%.

The bad news is that the stock’s latest peak comes amid historically low implied volatility (IV), which has been a bearish combination for in the past. Data from Senior Quantitative Analyst Rocky White shows nine other signals during the last five years when the security was trading within 2% of its 52-week high, while its Schaeffer's Volatility Index (SVI) sat in the 20th percentile of its annual range or lower. This is currently the case with MCD’s SVI of 16%, which sits in the 21st percentile of its annual range. One month after these signals, the stock was higher only 22% of the time, averaging a 3.5% loss.

Are options traders ahead of the curve? MCD’s 10-day put/call volume ratio of 1.43 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits in the 79th percentile of its annual range, implying a healthier-than usual appetite for long puts of late. Echoing this, the stock’s Schaeffer's put/call open interest ratio (SOIR) of 1.46 ranks in the 89th percentile of its annual range. The chart below shows the build in put open interest.

 

MCD OI

 

McDonald’s stock does sport incredibly low Schaeffer's Volatility Scorecard (SVS) of just 9 out of 100. This scorecard is used to identify which underlying stock options have historically had underpriced or overpriced options. Low SVS readings indicate consistently realized lower volatility than its options have priced in -- pointing to the possibility of MCD being a potential premium-selling candidate, rather than a premium-buying candidate.

 

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