We thought it was a sell at about $94. Not so. Again it looks like a sell, even more so now;

Here is MCD in both a arithmetic and a semi-log scale. If you concentrate on the arithmetic one you get the feeling that you are at nose-bleed heights and want to get off as soon as possible. The take from the semi-log chart is that you might just want to stick around un till you hit the upper trend-line. In both cases, superficially at least, clearly discernable 5-wave sequences are visible, either for the 5th wave or for the entire structure. In more detail we get:

Very compelling reasons to sell now are’

a. The Mnt. Everest phenomenon appears to be at work here. The stock is pulled up to reach that $100 magic target. In the process it is creating a considerable “throw-over” at two different degrees!

b. Even if it is not patently clear where it begins (and ends) there is nevertheless a triangle wave 4 for wave 5 and perhaps another one for wave 5 of 5, which is itself sub-dividable in 5 waves.

c. The distance travelled in wave 5, from $45 to $100, is now equal to that travelled in waves 1 through 3, $10 to $65, a common relationship.

In my humble opinion any prudent investor should say “thank you” and move on. An aggressive investor should consider shorting this stock, or buying put options;

Just an example. You can buy a put option valid for more than a full year at a strike of $87.50 for a premium of $5. If the stock were to drop at the same rate that it went up (over the year) it would be somewhere in the order of $72, consequently you would be “in-the-money” by about $15 and assume a time value of zero you would have a gain of 300%. Socks always drop faster than they rise so this could happen a lot earlier and there would still be time value. This is just an example as theoretically all options are priced according to the risk and one should be indifferent to which one to chose.

By the way the p/e is close to 20, fairly rich compared to a market average of 12 or so. This is , of course, a growth stock?

Mc Donalds has behaved almost like a bluechip. It did not drop as we thought it might, but then it did not progress much at all for the past4 months or so. Long –term this stock is trading above it’s 3 year old channel and is doing a “throw-over”. These come at the end!

From the short-term chart a good case could be made that the stock formed a triangle. This would be wave 4 of 5. The “measurement for this triangle suggests a top at around $94 at best. So now you have $2 or so to the upside and $42 to the downside. The big triangle wave 4 has it’s base at the $50 level and this is almost certainly where the stock will go once it starts it’s trek down. That is, by the way, also true in a continuing bull market.

If odds of 2 to 42 are appealing, then stay with the stock, all others should exit. This , I think, applies regardless of the EW count. It is a simple matter of being prudent or smart and applying the buy low/sell high principal.

Back in February it looked like this one had peaked. It simple continued its rise and added , perhaps , another 2 to 3 dollars. The problem may come from viewing wave 4 as a triangle (there is a flash-crash entry on the chart that may not be real). If you shift wave 4 to the left, you need one more leg to complete wave 5 and that may well be what we have been getting. A drop to at least $50 is in the cards.

I listened to an analyst today who strongly believes this is the stock of the future. It derives only a small portion of its income from the US, most from Europe, and barely anything from China, but that is coming. As a very good reason to buy ,he mentioned that the company had measured a reduction in the time it takes to serve a hamburger from one year to the next. 6 seconds and that this represented 6x 1million on the bottom line. Being able to measure is not the same as being in control. Time will tell.

McDonalds has a very interesting chart. Most stocks dropped from 2000 to 2003 and so did the hamburger chain. Than in 2008/9 most stocks dropped again,often by even more but MCD barely budged. Instead of dropping it formed a rather clear and distinct triangle, a consolidation pattern that almost guarantees further gains. These gains “normally”, but nothing is normal in these markets, equate to a level equal to the size of the mouth of the triangle, which is why we thought the stock was overdone at $70.

   As it happens the stock kept marching on and recently peaked at about $80, this is roughly 1.6X the triangle measure and about as far as they ever go. Once this , minor counter-trend rally is over (perhaps at $76 or so) this stock should be exited or sold.