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Mad cow disease discovered in Canada

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In what has been an otherwise calm and stable trading session has livened up a bit after Canadian officials say they've discovered mad cow disease in one cow.

At approximately 12:50 PM EST, Reuters reported that Canadian agriculture officials, along with federal Agriculture Minister Lyle Vanclief, will hold a new briefing in Edmonton, Alberta, at approximately 01:15 PM EST on what the department described as "an animal disease investigation."

A quick look at the commodities markets has the May Cattle futures (fc03k) $82.975 -1.7% dropping quickly from the $84.50 level in today's session. As briefly noted in today's market monitor, shares of Dow component McDonald's (NYSE:MCD) $17.68 -2.58% dropped precipitously on the reports, as MCD quickly fell from the $18.10 level to a session low of $17.34 in the course of 20-minutes.

While I would have thought this "mad cow" news would have seen a rise in cattle prices, commodity traders are noting that historical tendency for news of disease in a live commodity, normally has the commodity trading down, as consumers "fear" the disease and look to limit their consumption of the product that may be infected to a greater degree. In essence, a sudden shift in consumer purchasing habits can be found (demand), which then creates excess supply.

The weakness in Dow component McDonald's (MCD) has seen some marginal weakness come back into the Dow Industrials (INDU) 8,507 +0.16% as it currently holds a 13-point gain, but still off its late morning lows of 8,492, which were equivalent to yesterday's session lows.

Shares of fast food producer Wendy's International (NYSE:WEN) $30.01 -1.79% also experienced selling from the $30.70 level and saw its shares drop to a session low of $29.50 on the news.

One stock in the "fast food" group than might tend to "benefit" from today's news that traders may want to keep and eye on, where its point and figure chart just recently triggered a triple-top buy signal at $26.00 is shares of YUM! Brands (NYSE:YUM) $26.56 +0.52%. My thinking here is that while the company does own the A&W Franchise, other concepts like KFC (chicken), Pizza Hut, Taco Bell, Long John Silvers (seafood) could benefit from such a "fear" of mad cow disease, should consumers quickly change their fast food menu selections. The only reason I would mention this, is that I also view the technicals of YUM as bullish. A quick look at Dorsey/Wright and Associates sector bullish % for the restaurant group shows their sector bullish % (BPREST) "bull confirmed" at 51.85%, having just turned "bull confirmed" at the 46% reading in early May. This "bull confirm" reading would coincide with YUM having traded its recent triple-top buy signal at $26.00 after a successful test of its bullish support trend.

YUM's point and figure chart is longer-term bullish, and recent buy signal at $26 and current column of "X" have built an initial longer-term bullish vertical count of $38. The recent triple-top buy signal at $26, with SECTOR and MARKET bullish % still in a bullish phase, have me looking to Professor Davis' point and figure probabilities study, which has the triple-top buy signal pattern profitable 87.9% of the time, for an average gain of 28.7% in 6.8 months. The first sign of meaningful weakness for YUM's shares would be a trade at $21.00, which would be a double- bottom sell signal, with further sign of weakness should the shares trade $20, which would be a spread-triple-bottom sell signal.

With the S&P 500 Bullish % ($BPSPX) at higher levels of bullish % of 68.2%, I would only consider partial bullish positions at this point in shares of YUM, taking into account some risk management as it relates to MARKET risk and higher levels of bullish % from the S&P 500.

Jeff Bailey

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