Any time the stock market experiences a big decline like it did on Tuesday, it’s worth looking at the stocks that outperformed for future investing ideas. Investors can start by looking first at which sectors did well. However, that’s just the start. With the biggest stocks having so much influence on the sectors of which they are a part of, without diving deeper to the stock level, we often don’t get a true sense of what transpired. For instance, the Consumer Discretionary Select SPDR fund (XLY) lost 1.2% on Tuesday, but two stocks (Tesla and Amazon) accounted for 1.06% of that decline. That means many others didn’t do that badly. In fact, 45 of XLY’s 54 components outperformed the ETF, itself. One specific industry within the consumer discretionary space that showed relative strength Tuesday was restaurants. This prompted us to investigate the group further, which revealed that various stocks are sporting constructive technical formations. We touch on a few of them here. Restaurant stocks charts showing strength McDonalds (MCD) has had a wild ride over the last 10 months and now sits at the same price level that it was trading at last April — eleven months ago. Like many others, it dropped aggressively during the August-October’23 period, snapped back and actually made a new high this January. That proved to be a head fake, but over the last few weeks, the stock has held its own. Altogether, this has constructed the pictured bullish inverse-head-and-shoulders pattern. A breakout back above the $300 zone would target $355. That may seem like an outlandish target from current levels, but MCD has routinely broken out of multi-month (and sometimes multi-year) bullish patterns, made new highs and extended higher. MCD isn’t the only restaurant stock that’s sporting an attractive technical pattern. On the weekly chart, Restaurant Brands International (QSR) looks very similar to MCD, having formed its own inverse-head-and-shoulders formation over the last year. In fact, QSR is even closer to a potential breakout attempt. A move through the $80 zone would prompt an upside objective near $98. Longer-term, Yum! Brands (YUM) has been forming a potential bullish cup-and-handle pattern since topping in November 2021. Its 20-year chart isn’t as clean as MCD’s, but we’ve seen it break out to new highs various times since 2005. It could be getting ready to do so again now. Here’s really why investors should pay attention to the stocks mentioned above. Two other stocks had similar looking patterns over the prior few months, and when Wingstop (WING) and Texas Roadhouse (TXRH) broke out from their respective formations, they exploded higher. While this is no indication of what could happen now to MCD, YUM and QSR, it shows how breaking through multi-year resistance can attract momentum. And as we’ve seen, momentum can feed upon itself in the strongest markets and transform a good move into a great one. -Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: (Cappelleri owns Amazon) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
