Beverage and snack foods giant PepsiCo (PEP) reported an earnings and revenue beat for the fourth quarter Thursday morning and told investors they were getting a bigger dividend in their brokerage accounts. PepsiCo also said it would be buying back more shares. Sounds like great news, but let's check out the charts.
In this daily bar chart of PEP, below, we can see that prices have advanced the past 12 months with a few corrections and pullbacks along the way. Prices have been testing the rising 50-day moving average line recently but are nicely above the rising 200-day moving average line, which intersects around $158 or so. The On-Balance-Volume (OBV) line shows a rise into the middle of January followed by a decline into February, suggesting a shift toward aggressive selling. The trend-following Moving Average Convergence Divergence (MACD) oscillator crossed to the downside in early January and has weakened toward the zero line, telling us that the trend strength is fading.
In this weekly Japanese candlestick chart of PEP, below, we can see some recent upper shadows above $175, telling me that traders are rejecting the highs of the day. Prices are trading above the rising 40-week moving average line. The weekly OBV line turned lower ahead of earnings and signals a shift to sellers. The MACD oscillator has narrowed and is close to a downside crossover and take profit sell signal.
In this daily Point and Figure chart of PEP, below, we can see that the software is projecting a potential upside price target of $217. A trade at $166 may start to weaken this chart.
In this weekly Point and Figure chart of PEP, below, we see the same $217 price target.
Bottom line strategy: We were positive
in front of PepsiCo's last earnings report and gave a $182 price target. PEP reached $177 and for me that is close enough for government work. Despite the numbers this morning, it looks like PEP can weaken in the days and weeks ahead. Traders should take their profits and look for opportunities elsewhere.
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