Less than two months ago, on September 19th, the stock price of the biggest fast food chain in the world was hovering below $158 a share. MCD stock had spent most of 2018 moving sideways without making any meaningful progress. The good news was that in the meantime it had formed a textbook triangle correction, which according to the Elliott Wave Principle is a continuation pattern.
In other words, the uptrend which has been in progress prior to the triangle, was supposed to resume and lift McDonald’s (NYSE:MCD) stock to a new all-time high soon. With that in mind we shared the chart below with you.
The hourly chart of MCD stock gave us a closer look at five sub-waves of the triangle pattern in question. It also allowed us to identify the bottom of wave “c” at $153.15 as the invalidation level for this count. As long as the stock traded above it, the bullish outlook was going to remain valid and targets above $180 were still plausible.
MCD Stock Looks Vulnerable above $180
In the weeks following this prediction, McDonald’s hiked its quarterly dividend by 15%, received buy recommendations at Guggenheim and Evercore, and beat both earnings and revenue estimates in its Q3 report. None of these developments could have been predicted in advance. Still, the Wave principle managed to put traders ahead of them all.
“The habit of the market is to anticipate, not to follow.” Did Ralph N. Elliott know this was still going to hold true in 2018, when he said it in the 1930s? Maybe. All we know is that the stage was set for a rally in MCD stock on September 19th. All the positive news that came out shortly after was not the cause of anything. It served merely as the catalyst the market needed in order to do what it had in mind anyway. And most importantly, the bears never had a chance to threaten $153.15.
MCD stock rose to a new all-time high of $181.08 yesterday. That is less than $2.40 a share above the previous record, but it is enough for breakout traders to start bracing for more big gains going forward. Unfortunately, we do not share their optimism. Triangles precede the final wave of the larger sequence. Here, the final wave is 5 and it is already in progress. According to the big picture outlook, we can expect a notable bearish reversal back to $150 – $140 as soon as wave 5 is over.
Picking a top is never a good idea. MCD stock is probably going to reach higher levels in the short-term. Nevertheless, we think it is no longer worth the risk.