McDonalds’ shares rose by more than 6% to a new all-time high of 110.83, after the company’s third-quarter earnings topped analysts’ expectations today. Earnings reports are considered to be among the most important financial news for a company, so we understand investors’ enthusiasm about McDonalds right now. However, it is only news. It might sound like a blasphemy to many, but, in our opinion, news is hardly any indication for the long-term prospects of a stock. That is why, instead of being too optimistic, we prefer to take a step back and see how things look like from the perspective of the Elliott Wave Principle. On the weekly chart of McDonalds stock, given below, you will see a pattern, which often spells trouble.
There seems to be a very clear triangle pattern, prior to the current post-earnings explosion to the north. According to the theory, triangles precede the last wave of the larger sequence. This is more than enough reason for us to prepare for a bearish reversal, once the bulls run out of optimism. And they might do so very soon. But let’s take another step back and check where does this triangle pattern fit into the even bigger picture. The monthly chart comes in handy.
It seems very obvious, that the triangle takes the place of wave 4 of (3) of McDonalds’ multi-decade-long uptrend. This means that once wave 5 of (3) eventually ends, wave (4) to the south should begin. Sorry to disappoint, but we believe, that due to its large degree, wave (4) has the potential to sink prices back to $90 or why not even $85 per share. Bulls, beware.
