McDonald's Shares On Verge Of Next Breakout

Mar. 5.12 | About: McDonald's Corporation (MCD)

The $100 level for shares of any company marks the climbing of a significant pillar. A plateau spared for not only industry leaders, but market leaders. Many will never reach such a level, others will briefly eclipse the threshold before succumbing to market reality while the remaining few use the milestone as ever more reason to trek higher. For McDonald's (NYSE:MCD), the nearing three month fight to break the barrier has set up for a promising and potentially profitable trade opportunity.

The first thing to watch when stocks near such intrinsic values is whether the share price will hold following such a strong showing. After all, past performance does absolutely nothing as far as pushing shares through such a level. If future earnings appear stale, such a valuation will only be short lived. For McDonald's, the fact the lowest intraday price the shares have hit since late December is $97.70 is further proof the resulting valuation is no fluke nor a result of just favorable overall market movement. For if it was, profit taking on shares that are up over 25% in a year and 820% in nine years would be rampant.

On another encouraging front, even with that impressive surge in price, McDonald's shares have maintained excellent performance throughout the past decade without much in the way of significant pullbacks or poor quarters. Even during the market crash between October 2007 and March 2009, the shares maintained their price in the $50-$60 range. Such a performance indicates there are a number of traders who believe these shares can go even higher.

After the favorable chart patterns, below are three more reasons shares may go up from here.

  1. Strong performance in Europe: McDonald's reported a 7.3% increase in sales in Europe for the fourth quarter, further illustrating the overall strength of the company to do well in such a dire environment.
  2. Inflation: Higher gas prices also seriously effect the price of food. With cutbacks almost a necessity for many in regards to full service restaurants and grocery shopping, picking up a value meal from McDonald's on the way home from work might be tempting.
  3. Earnings: The company has not missed on earnings in the past 16 quarters while also projecting a further 8% growth rate in 2012.

It is important to keep in mind any near term buy orders on McDonald's shares should be accompanied by a stop loss order at $97.00 to protect against a breakthrough from support or poor market conditions.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.