McDonald’s next move may depend on one fast-food rival’s stock

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It may just be the key to the Golden Arches.

Wendy’s stock chart could forecast a lot for shares of McDonald’s, MKM Partners chief market technician JC O’Hara told CNBC’s “Trading Nation” on Wednesday.

McDonald’s announced Wednesday that its global same-store sales plunged 22% in March as worldwide lockdowns forced the popular fast-food chain to halt in-house dining.

For anyone interested in fast-food stocks, “you really have to have the stomach to be able to withstand major volatility, and I don’t think that volatility is over just yet,” O’Hara said. “I brought a chart of Wendy’s because I think that’s a good example of what we can expect going forward.”

“If you look at Wendy’s, the stock declined over 70% from its February highs to its March lows,” he said. “As news started to slowly turn positive, it recovered, and that recovery was meaningful. It was up 130%.”

That recovery brought Wendy’s out of a trading range from $12.50 to $15.50, which has now become an area of support for the stock, O’Hara said.

“If we stay above it for Wendy’s, I think it has a good chance to retest 20,” he said. “So, I think that, in essence, bodes well for McDonald’s. So, if Wendy’s can hold its head up, then I think that’s a positive read-through for McDonald’s.”

Wendy’s shares rallied nearly 8% to close at $16.04 on Wednesday, and it was up to $16.10 on Thursday’s premarket. McDonald’s shares climbed over 1% to close at $177.49 on Wednesday. It was at $178 in Thursday’s premarket

John Petrides, portfolio manager in the wealth division of Tocqueville Asset Management, said in the same interview that while it was a “good sign” that McDonald’s shares held up after such a grim announcement, it may have been the first of many to come.

“With earning season ramping up next week, I do think this is what we’re going to see from a lot of companies, and that is, you know, massive downward revision, downward numbers on top-line growth, and companies husbanding cash,” Petrides said.

“You see McDonald’s cut its capex and removing guidance,” he said, referring to the company’s $1 billion cut in capital expenditures. “If you’re a CFO of a company, with the environment that we’re in, why would you even stick your neck out to try to figure out what we’re going to be like at the end of the year?”

When it came to Wendy’s, Petrides suggested opting for other names.

“Wendy’s has leverage on the balance sheet [and] clearly doesn’t have the size and scale that McDonald’s has,” he said. “When you look at the overall market, there’s enough high-quality companies that are on sale. I don’t think you need to go bottom-fishing in a Wendy’s.”

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