Chart Of The Day: Are Investors Expecting Coca-Cola Q2 Report To Disappoint?
Investing.com | Jul 22, 2019 10:01AM ET
Is Coca-Cola (NYSE:KO) about to disappoint on earnings for the first time in over two years, as the chart seems to suggest?
The beverage giant is due to release Q2 results Tuesday before market open. The forecast is for EPS to be $0.62, little changed since the same quarter last year which provided a $0.61 EPS. Revenue is expected to come in at $9.79 billion, up from last year's Q2 revenue of $8.55B. The company has beaten expectations on both EPS and revenues since the first quarter of 2017, bar Q4 2018 when earnings met expectations.
Analysts have been coming around with a more positive outlook after revising expectations downward following Q1's downbeat guidance—which sent the stock crashing over 8% on the open after the release, despite the company’s raising its dividend payout that month. Now, some say the stock is undervalued, and others even see a catalyst if the company joins the soaring demand for CBD and related products.
Indeed, some analysts now say the stock is undervalued. The shares are up 8.53% year-to-date, lagging substantially behind the S&P 500’s 18.77% gain in the same period. Coca-Cola is also far behind competitor PepsiCo (NASDAQ:PEP), whose stock has jumped 17.75% this year—though technically it may have just topped out.
But if the stock is such a bargain, why are the charts flashing several red flags?
The price dropped below its short-term uptrend line on Friday, potentially blowing out what should have been a bullish ascending triangle, which demonstrates that demand is outpacing supply. However, instead of breaking the topside, the price plunged.
While investors may chalk up Friday’s decline to the general market’s selloff, why then has the MACD’s long MA fell below the Short MA, triggering a sell signal from the very beginning of the supposed bullish pattern, while the SPX’s MACD only did so on Friday?
We don't know that the chart’s weakness necessarily suggests that informed money, or even investors, expect disappointing earnings. It could simply be tracking the broader market’s weakness, but does it matter? Traders' primary interest is only that the trade goes their way.
h2 Trading Strategies – Short Position/h2Conservative traders would not short the stock before it forms two descending peaks and troughs, establishing a downtrend.
Get The News You Want
Moderate traders would wait for the price to fall below at least the 50 DMA – if not below the $50 key level – and find resistance below the triangle, with at least a single, long, red candle engulfing a green or small candle of either color.
Aggressive traders would rely on the 1% penetration and the MACD, RSI sell signals, while assessing the optimum entry and stop-loss risk. They would have to assess whether to wait for an upward move to limit exposure, at the risk of losing the position with a continued fall.
Trade Sample – Patience: Limit exposure at the cost of losing the position
- Entry: $52.00
- Stop-Loss: $52.50, above the July 16 high
- Risk: $0.5
- Target: $50.50
- Reward: $1.5
- Risk-Reward Ratio: 1:3
Trade Sample – Immediate Trade: increase exposure to avoid losing the trade
- Entry: $51.50
- Stop-Loss: $52.50, above the pattern’s high (July 16)
- Risk: $1
- Target: $48.50
- Reward: $3
- Risk-Reward Ratio: 1:3
Trade Analysis: Waiting for a potential pullback reduces the stop-loss distance, which requires a smaller target for a minimum 1:3 RRR. The cost, of course, is the potential of a continued decline, losing the trade.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.