McDonald’s Beat Earnings but Stock Collapses

McDonald’s (NYSE:MCD) gives us another example of what can endlessly frustrate new traders.


By Corey Rosenbloom

Beating earnings, the stock collapsed 4% in the morning session.

Better earnings… collapsing stock?  What’s going on?

Let’s take a look at the chart, the gap, and see where the price goes from here:

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First, Wall St. consensus estimates were for an increase of $1.38 per share.

McDonalds reported an increase of $1.45 per share, beating consensus estimates. Yay!

However, revenue and same-store sales fell just short of expectations, and that’s part of why price collapsed this morning.

It doesn’t have to make sense – in a perfect world, a “beat” on earnings should result in a gap-up in the price of a stock.

In reality, investors and traders take a look at the entire report, especially current and future revenue, and collectively make a decision whether to hold, buy, or sell.

In this case, they hit the sell buttons aggressively, gapping the price through daily EMAs.

Let’s see the set-up on the weekly price chart:

Negative divergences undercut the strong rally into $130 per share and price traded all the way back to the rising 50 week EMA near $117.00 per share.

A four-week rally took us back toward the $130 level but today’s earnings reaction sent the stock lower, all the way back to the 20 week EMA target at the $122.50 level.

For now, we’ll be focusing on the $122.50 and expecting a swing “away from” this level.

A downside target (see Daily Chart) opens toward $119 while a bounce-play off the 20 week EMA gives bulls a chance to rally this stock back toward the $128.00 new-gap high.