PepsiCo (PEP) reports earnings before the open on Tuesday, July 9, with the stock trading around its monthly pivot at $132.42 and below its semiannual risky level at $135.00. My call is to sell PepsiCo between these key levels.

PepsiCo closed the first half of 2019 at $131.13 on June 28, which became a key input to my proprietary analytics. The only level left over from the first half is its annual pivot at $125.27, which is now considered a value level. The daily chart shows a "golden cross" and the weekly chart has been positive but overbought since the week of March 29 when the stock closed at $122.55.

Fundamentally, PepsiCo is overvalued, with a P/E ratio of 23.67 and a dividend yield of 2.85%, according to Macrotrends. The retailer of snacks and beverages reports quarterly results before the opening bell on Tuesday and analysts expect the company to earn $1.49 per share. PepsiCo has beaten earnings-per-share estimates 13 quarters in a row as the stock reached its all-time intraday high of $135.24 on June 24. The snack food business should remain robust, so the key will be demand for sweet drinks and diet sodas. Keep an eye on international demand given tariffs and currency volatility. PepsiCo is becoming eco-friendly by planning to offer water in aluminum cans instead of plastic.

PepsiCo reported strong earnings on April 17, propelling the stock above its annual pivot at $125.27, which held on weakness between April 25 and May 9, allowing the stock to extend gains to its all-time intraday high of $135.24 on June 24.

PepsiCo closed Friday at $133.02 up 20.4% year to date and in bull market territory 26.6% above its Dec. 26 low of $105.03.

The Daily Chart for PepsiCo

Courtesy of Refinitiv XENITH

The daily chart for PepsiCo shows that the stock has been above a "golden cross" since Aug. 16. 2018, when the 50-day simple moving average rose above the 200-day simple moving average, indicating higher prices are ahead. Under this bullish signal, investors are advised to buy weakness to its 200-day SMA, which was doable several time between Sept. 4 and Jan. 30, when the average was $110.81 and $109.71, respectively. The stock has been above its annual pivot at $125.27 since May 10. The third-quarter value level is $119.28 with a pivot for July at $132.42 and semiannual risky level at $135.00.

The Weekly Chart for PepsiCo

Courtesy of Refinitiv XENITH

The weekly chart for PepsiCo is positive but overbought with the stock above its five-week modified moving average of $131.01. The stock is well above its 200-week simple moving average or "reversion to the mean" at $110.17, which held as a buying opportunity during the weeks of Oct. 12 and Dec. 28. The 12x3x3 weekly slow stochastic reading is projected to slip to 82.80 this week down from 86.69 on July 5, still above the overbought threshold of 80.00. During the week of May 24, this reading was above 90.00 at 94.37 as an "inflating parabolic bubble," which indicates risk that the bubble is popping this week.

Trading Strategy: Buy weakness to the annual and quarterly value levels at $125.27 and $119.28, respectively, and reduce holdings between its monthly pivot at $132.42 and its semiannual risky level at $135.00.

How to use my value levels and risky levels:

Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, the latest on June 28. The quarterly level was changed at the end of June. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best. The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."

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