Coca-Cola Co. (KO - Get Report) reports its second-quarter results on Tuesday, July 23, after ending last week with a "key reversal." A weekly "key reversal" for Coke occurred after setting its all-time intraday high of $52.47 on July 16 then closing at $51.39 on July 19 below the prior week's low of $51.37. The stock opened Monday at $51.52, failing at its annual pivot at $51.51. My call is to sell Coke on strength to between its annual pivot at $51.51 and second-half risky level at $52.67.
Shares of Coca-Cola are also experiencing what I call the "power of the pivot." The stock first tested its annual risky level at $51.51 on June 6 then crisscrossed this level during 14 days since then including July 22. The "power of the pivot" shows how an important level becomes a magnet after being crossed.
The fundamental reason to sell this stock is that it's not cheap. Its P/E ratio is elevated at 24.47 with a dividend yield of 3.11%, according to Macrotrends. This dividend is favorable enough for the stock to remain one of the eight "Dogs of the Dow" for 2019.
Coke closed the first half of 2019 at $50.92 on June 28, which became a key input to my proprietary analytics. Left over from the first half of the year is the annual pivot (or magnet) at $51.51. The risky level for the second half of 2019 is $52.67. The value level for July is $49.48. The third-quarter value level is at $48.58.
The daily chart shows a "golden cross" and the weekly chart has been positive but overbought since the week of June 7, when the stock closed at $51.49.
Analysts expect Coke to show earnings of 62 cents a share when it reports before the opening bell on Tuesday, July 23. The company is diversifying away from sugary sodas. The items on their menu include waters, teas, coffees and energy drinks. There are new flavors of coke including the new favorite Coke Zero. I shop at Publix and whenever Coke sodas are BOGO (buy one get one free) I stock up. Coke Zero contains no sugar and tastes just like regular coke. This brand always sells out first.
The stock closed last week at $51.39 up 8.5% so far in 2019 and up 15.7% from its Feb. 27 low of $44.42.
The Daily Chart for Coca-Cola
Courtesy of Refinitiv XENITH
The daily chart for Coca Cola shows that the stock had been above a "golden cross" since May 17, when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices lie ahead. This tracked the stock to its annual pivot at $51.51 and to the all-time intraday high of $52.47 set on July 16. The horizontal lines below the price action are monthly and quarterly value levels at $49.48 and $48.58, respectively. The semiannual risky level is at the top of the chart at $52.67.
The Weekly Chart for Coca-Cola
Courtesy of Refinitiv XENITH
The weekly chart for Coca Cola is positive but overbought with the stock above its five-week modified moving average at $50.99 and well above its 200-week simple moving average or "reversion to the mean" at $44.90 last tested during the week of June 29, 2018, when the average was $43.13. The 12x3x3 weekly slow stochastic reading is projected to slip to 87.16 down from 88.62 on July 19.
Trading Strategy: Buy weakness to its monthly and quarterly value levels at $49.48 and $48.58, respectively, and reduce holdings on strength to its semiannual risky level at $52.67. The annual pivot at $51.41 remains a magnet.
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.