- A slew of negative developments that includes missing third quarter estimates and the firing of the CEO are giving investors ammunition to short McDonald’s.
- Technical analysis of the shorter and longer time frames reveal that the fast food giant is likely to bounce.
- McDonald’s is also aggressively repurchasing shares, which increases the odds of shorts getting liquidated.
Many investors are bearish on McDonald’s (NYSE:MCD), and understandably so. The fast food chain missed key estimates in its third quarter earnings report. On top of that, the company’s board recently fired its CEO Steve Easterbrook for dating a fellow employee. Having a consensual relationship with an employee is a violation of company policy. Lastly, McDonald’s appears to be losing bullish steam as the shares are down by over 11% from the all-time high of $221.93.
The series of unfortunate events for the fast food giant is driving investor sentiment. It appears that retail traders are so bearish on the stock that even a partially deflating Ronald McDonald balloon is seen as a short signal.
Nevertheless, shorting McDonald’s at current levels is not a good idea. Here are three reasons why.
1. McDonald’s Is Ripe for a Bounce
McDonald’s lost all bullish momentum after it broke down from a textbook head and shoulders top in October. This led to a waterfall event that saw the equity drop to as low as $187.55 on Nov. 4. At that point, bulls were able to stop the bleeding. They managed to hold support of $188.
Trader Hidden Pivots closely followed the action. He sees a possible bounce on the horizon after MCD negated the bearish continuation pennant.
2. McDonald’s Looks Bullish in the Longer Time Frame
Shorting a stock that’s macro bullish can quickly backfire. This is especially true if technical indicators are flashing…