Fast Food, McDonald’s (MCD), and Fast Profits

We’ve got new highs, ladies and bohunks, on all the major indexes.

It’s a certified breakout, and considering the charts we’re about to show you, it’s also setting up to be one wham-doggy, slap’o’the porpoise affair.

This is a chart of where Main Street is currently situated vis-à-vis the stock market. And as you can see, there’s not a whole lot of enthusiasm for equities these days.

AAII-BULLISH-2009-2015

Despite the Dow, S&P 500 and NASDAQ posting new all-time highs this week, the American Association of Individual Investors has now declined for ten of the last twelve weekly readings and is fast approaching six year lows.

Given the contrarian nature of this indicator, it is not conceivable that a market top is in place or that one is even remotely close. Individual investors are, as a group, among the worst market timers in the game. They consistently vote, as a group, to sell at bottoms and buy at tops. The latest AAII reading must be understood in this context. Extreme pessimistic readings are a green light to load up – not sell.

Next Up: Corporate Cash, Where is it Heading?

Our next chart (below) shows that against Main Street’s myopia, corporate America’s vision is 20/20 clear.

We have spoken in these pages about the recent trend among cash-rich corporations to issue cheap debt in order to buy back their own shares. It’s been going on for several years in earnest, but in the last few months it has gathered a resolute and manifest momentum.

Look here –

WEEKLY-BUYBACKS-SP-500

As it became clear that interest rates would shortly be rising, the press to lock in funding at cheap rates grew incredibly strong – until it literally went off the charts these last few weeks (in red).

But the decision to steer those new funds toward equity purchases rather than spending them on capital goods – in order to achieve a better return on investment (the stock market, after all, is a place where people invest, right?) – this was corporate America’s most brazen and unequivocal declaration of faith in the future of equities. Why not, after all, pay back one’s debt with profits from a burgeoning stock portfolio? It beats working for a living, no?

It sure does.

But it also runs counter to the first lesson we ever learned way back in the beginning of our brokerage days, and that is – never borrow to invest.

GRUMPY-CLOWN-COASTER

The long and short of all the foregoing is that we’re now clearly in the lift-off phase of this bull market, and we can’t tell you how long it will last, only that it will be relentless and dogged in its climb, will tune out the absolute worst news that daily slams up against it, ignoring the reality and sanity of all those who regularly preach against it, obstinately ascending toward that place where self-inflicted wounds are no longer felt and the air is so thin it anaesthetizes the senses and dulls one’s sense of risk altogether.

Welcome to market fantasyland.

Fasten your seat belts.

And have a nice day.

Opportunities Abound

For those who can stomach the ride and the incessant verbal bashing that the market will take over the coming months, we believe there’ll be unexpected profits to be had.

Best not be too cute about it, either. A straightforward long bet, hedged or unhedged, on one of the indexes or on a solid mega-cap that has some media luster will provide the best prospects.

Our own favorite bet currently is hated fast-food purveyor McDonald’s Corp. (NYSE:MCD), a company that’s seen nothing but bad press for close to a year.

That notwithstanding, the stock has rebounded splendidly, and today looks like an outright buy.

Take a look –

NYSE-MCD-CHART-RESISTANCE

MCD’s technicals are great.

  1. Both McDonald’s (MCD) RSI and MACD indicators (in green) are above their waterlines after an extended period of positive divergence against price.

  2. The IBD’s famous bullish ‘cup and handle’ formation is clear from the last eleven months’ action (in red), and

  3. We are at the top end of the stock’s trade range, bumping up against resistance at 101 (in blue) and ready for a break higher any day.

MCD – Trade it!

Sell in May and go away” is a handy old Wall Street adage that actually has some statistically verifiable meaning to it. The gist, they say, is to cash in your chips before summer and buy back in after Labor Day, that period typically representing the ‘coldest’ market returns for the year.

But it won’t pan out that way in 2015, friends. We expect heat and more heat as the summer progresses – in every sphere. Look for a Labor Day cash-out, if anything.

Have a burger with MCD.

And ignore the noise.

Many happy returns,

Matt McAbby

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