Rates as Competition for Stocks
The 30-year Treasury yield sits at its highest level since 2004. The 10-year is at its highest since 2007, trading at 512 (5.12%) at the market open. When yields climb above 5%, investors ask what they gain by taking risk in individual stocks if they can lock in 5% guaranteed. That gives the stock market real competition from the risk-free rate. Stocks are struggling to rise, and many are rolling over and falling. Not long ago the talk was Dow 5,000; the Dow has since pulled back.
McDonald's (MCD)
MCD fell almost 5% to 238 after an investor day that laid out a 10-year "next" strategy, which the market received poorly yesterday. Today it trades higher, up about 1% at levels around 240.73 to 240.82. Plans are fine, but the numbers tell the real story, and MCD is weak on both fundamentals and technicals.
Q2 U.S. comparable sales rose only 0.8%, below expectations, against about 2.5% growth the prior year, so growth is slowing. Management said lower-income consumers are cutting restaurant spending as fuel and other needs take more of their budget. Higher gas costs, plus higher interest rates raising the cost of carrying credit card debt, leave less money for discretionary spending like fast food. People shift to cooking at home.
Technically, a moving average cross flipped the trend in April, and the stock has slid since. An expected bounce near 245 failed - that level broke. Before the steeper decline the shape was a falling wedge, and the drop was a downside breakout from an already down-tilted pattern. A narrow, tight channel then formed between two lines; the top line copied across the lows matched recent action cleanly. A downside breakout hit lows of 234.3. Today there is an attempt to push back into the channel, forming a harami candle - a small green candle fully inside the prior day's larger red candle. If it holds into the close, a harami hints at a stall in momentum and a possible turnaround.
Other levels: an old high at 252 before the sharp decline, a repeated floor near 261, a repeated ceiling near 279; that sideways move then turned into the rapid drop. RSI trended lower, dipped below 30 into oversold yesterday, and has barely climbed back to 30.3; oversold usually points to more weakness. The 5-day EMA sits at 244; the 21-day EMA (one month) at 253.22. Volume profile shows an accumulation zone from 247 to 256 (messier) and a clearer zone from 268 to 278, plus heavy volume on down days - not a good sign overall.
Trade: A bear call spread, not bullish. November 2026 expiration. Buy the 270 call for about a $3 debit and sell the 260 call for about a $1.50 credit, giving a net credit of $1.50. This gives roughly a 20 to 25 point upside cushion before trouble, and time decay keeps the premium. Risk about $10 to make $1.50, which is 15% in 57 days if the stock stays below 260 - a decent risk-reward. Unlike a tech stock that could pop on a new AI model, MCD has no catalyst to reverse; it should drift lower or at best sideways.
Capital One (COF)
The pick came from scanning the Dow Jones and Dow Composite, checking American Express (AXP) and other card names, then moving to COF. Higher rates help lenders until they hurt the borrower. The model needs people to borrow at higher rates and borrow more. The problem: many people are strapped, likely not borrowing more, and paying higher interest on existing debt.
American credit card balances reached $1.26 trillion in Q2, up $21 billion in the quarter. The share of balances 90 days delinquent climbed to 7.6% in Q3, up from Q3 2022 toward 12.8% in Q1 - close to a doubling. When delinquencies rise, lenders lose interest income and must write down bad credit.
The dichotomy: COF itself is doing well. Its net charge-off rate fell to 4.7% from 5.25% earlier. Its 30-day delinquency rate fell to 3.39% from 3.60% a year earlier. Both improved, yet Wall Street keeps selling the stock. The question is whether it is selling off because credit is deteriorating now, or because investors fear higher rates will eventually hit COF - even though it is the best in its sector. Year to date the sector's best performer is down about 20%, well below the market.
Technically the chart has two phases. A sharp rally hit a 52-week high at 259.64 shortly before earnings. Then a large decline and an earnings gap down. The stock repeatedly topped near 227, including at the start of the current channel, and repeatedly bottomed near 174 - a wide sideways range with two clear boundaries. The shorter-term trend is a downward sloping channel. A downside breakout is now testing near 196; price is below that level and looks precarious. The next low close is around 192, then a gap fills near 186, though it stays within the overall range. Faster moving averages are crossing below slower ones, and the upward trend line broke around the same time - the trend is shifting down. Momentum is near oversold; a dip below 30 would be another bearish signal. Volume profile: the key node is 201 to 210 with point of control near 207; another node at 190 to 194 could offer support for a bullish view.
The Fed narrative shifted from "will they cut" to "how many hikes," and hikes aim to slow the economy, which hits lower-income borrowers hardest - the people who rely on credit cards. The 10-day crossed below the 200-day moving average; the last time that happened the stock fell to about 175. It can technically reach 180 to 175.
Trade: Long puts. December 18, 2026 expiration. Buy the 210 strike put for about $20. Break-even is $190, near the current price. A $5 drop hits break-even on intrinsic value, with profit from the remaining time value. Set an "I'm wrong" level: if it closes back above the 10-day moving average, momentum is changing, so take a small loss and get stopped out. That is unlikely. COF trades down about a third of a percent on the session.
Procter & Gamble (PG)
Same push and pull as COF. Investors normally hide in consumer staples when markets are volatile or falling. The problem now: with the 10-year above 5%, why buy staples when a risk-free Treasury pays a guaranteed 5%-plus? Even staples face competition for safety.
What makes PG different from MCD and COF: MCD depends on discretionary income and COF depends on borrowing, but people still need Tide, Pampers, Charmin, toilet paper, toothpaste, and deodorant. Staples are the last thing cut; fast food is the first, and a credit card can be dropped or defaulted on. The chart has gone sideways, a good setup for a range-bound trade. Numbers are flat - sales up maybe 1%, net sales up 3% - basically flat revenue, which matches the flat, sideways price. Year to date PG is up about 3%; over 52 weeks down about 3%, hovering near unchanged.
Technically it is range-bound: a repeated ceiling near 153 and a repeated floor near 141. A triangular shape has produced an upside breakout, but price failed to clear recent post-earnings highs near 148, so the modest breakout is overshadowed by that resistance. The 251-day EMA sits overhead near today's highs around 149. RSI is middling above the 50 midline but below a longer-term downward trend line. Volume profile confirms the range: point of control near 144-145, inside the node from 143 to 149, pointing to continued sideways action. PG trades flat on the session at 147.29.
Trade: January 15, 2027 expiration, about 113 days out. Buy the 140 strike call, since support held near 140 last time. Break-even is 152, and the stock can run to short-term resistance near 152 - break-even on intrinsic value, profit on time value. The condition: wait for a close above the 200-day moving average. The stock just fell back below the 200-day; if it stays below, wait on the trade, but take it if it closes above the 200-day.
