Beverage giant PepsiCo (PEP) reported a second-quarter earnings beat here on Tuesday morning and raised its sales forecast for the full year. It all sounds great, but PepsiCo's charts and indicators tell a different story going forward. Let's check them out.
In this daily bar chart of PEP, below, we can see that prices have been making higher lows the past 12 months. We can see higher highs until April and then prices show some weakness. PEP is trading above the bottoming 50-day moving average line and above the rising 200-day line. The On-Balance-Volume (OBV) line shows us a longer-term rise but sideways movement since January. The line is not far from making a new high to foreshadow new price highs, however. The trend-following Moving Average Convergence Divergence (MACD) oscillator is bullish.
In this weekly Japanese candlestick chart of PEP, below, we can see the past three years of price action. Prices are trading above the rising 40-week moving average line but we can also see a number of upper shadows above $175, telling us that traders have been rejecting those levels. The weekly OBV line shows us a drift lower so far this calendar year. The MACD oscillator is still above the zero line and trying to cross to a fresh outright buy signal.
In this daily Point and Figure chart of PEP, below, we can see a potential upside price target in the $205 area. A trade at $178 is needed to refresh the uptrend.
In this weekly Point and Figure chart of PEP, below, we can see a downside price target of $137. A strong weekly close above $178 is needed to turn this chart bullish.
Bottom line strategy: It would be nice to be bullish on shares of PEP after an earnings beat, but we have seen rallies fail in the $175 area. This time could be different, but with the weakness in the broad market averages I am holding back on making a recommendation. Call me gun-shy, but I plan to wait for a breakout above $178.
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