PepsiCo Reports Earnings Above Its 'Reversion to the Mean'

Beverage and snack food giant PepsiCo, Inc. (PEP) held its "reversion to the mean" in October and December, but the chart shows a potential double top with highs of $122.51 in January 2018 and $122.30 in November 2018. The low in between these levels was $95.94 in May 2018. PepsiCo stock closed Wednesday, Feb. 13, at $114.12, up 3.3% so far in 2019. The stock is 8.7% above its Dec. 26 low of $105.03 and 6.5% below its Nov. 30 high of $122.00.

PepsiCo reports quarterly earnings before the opening bell on Friday, Feb. 15, and analysts expect the beverage and snack company to post earnings per share of $1.49. The company has an elevated P/E ratio of 20.80 with a favorable dividend yield of 3.26%.

PepsiCo has a diversified menu of beverages and snacks including Frito-Lay, Gatorade, Quaker and Tropicana. The company has delivered positive earnings reports for 11 consecutive quarters. Guidance on product launches, marketing initiatives, and growth in developing and emerging markets will likely drive earnings volatility.

The daily chart for PepsiCo

The daily chart for PepsiCo shows that the stock needs to hold its 200-day simple moving average at $110.20 on earnings weakness. This is important as I do not show any value levels from my proprietary analytics. The Dec. 31 close of $110.48 resulted in quarterly, semiannual and annual risky levels at $119.70, $120.79 and $125.27, respectively.

The weekly chart for PepsiCo

The weekly chart for PepsiCo will remain positive if the stock ends the week above its five-week modified moving average of $111.79. The stock is above its 200-week simple moving average, or "reversion to the mean," which is a key level to hold at $106.96 that held during the weeks of Oct. 12 and Dec. 28.

The high of $122.51 set during the week of Jan. 26, 2018, lines up with the high of $122.00 set during the week of Nov. 30 and can be considered a double top. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 37.79 this week, up from 34.46 on Feb. 8.

Trading Strategy: Buy PepsiCo shares on weakness to the 200-day and 200-week simple moving averages at $110.20 and $106.96, respectively, and reduce holdings on weakness to my quarterly, semiannual and annual risky levels at $119.70, $120.79 and $125.27, respectively.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.