Beware McDonald’s, but these other restaurant stocks look attractive, says Katie Stockton

The sell-off for McDonald’s Corp. (MCD) driven by the E. coli outbreak was meaningful from a chart perspective. The drop resulted in confirmation of intermediate-term overbought ‘sell’ signals from both the weekly stochastics and the DeMark Indicators. Additionally, MCD is overbought from a long-term perspective in our work. As a result, the MCD chart has the look of false breakout, which tends to give way to more downside. The downturns in the stochastics increase downside risk in the weeks ahead. Initial support on the chart is near $289 and then $272 based on Fibonacci retracement levels. McDonald’s releases its earnings report tomorrow, which could contribute to near-term volatility. Should MCD get back into last week’s gap, above roughly $302, that could help provide temporarily relief from the pullback. However, the intermediate-term ‘sell’ signals previously highlighted suggest an earnings-driven rally will likely fade quickly, so we might use strength to reduce exposure. Even with its recent decline, MCD ranks in the top half of stocks in the restaurant industry group when looking at 3-month and 6-month returns. However, the recent news of the outbreak and negative technical catalysts for MCD suggest investors should look elsewhere, for now. We expect rotation into some of the beleaguered laggards in the industry group. Laggards that could benefit Two examples of lagging restaurant stocks are Bloomin’ Brands Inc. (BLMN) and Jack in the Box (JACK) , both of which have intermediate-term oversold ‘buy’ signals, which run counter to the ‘sell’ signals in MCD. The signals support counter-trend bounces lasting into year-end, which sets them up to outperform other restaurant stocks, many of which are overbought, over that timeframe. Next major resistance for JACK is at the 200-day, or 40-week moving average, near $58. Long-term support is near $40-$41 area, which goes all the way back to the 2007 peak. BLMN similarly has key support nearby from the 2022 low, near $15.90. Resistance levels to watch for BLMN are near $18.70 and then $20.90, both of which are Fibonacci retracement levels. —Katie Stockton with Will Tamplin Access research from Fairlead Strategies for free here . DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. 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. 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