Buy PepsiCo on the Dip - The Charts Say to Look Here

PepsiCo is lower after reporting earnings. Here's where to buy the stock on a dip.
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PepsiCo (PEP) - Get Report shares were under some pressure Thursday morning, falling about 0.7% after the company reported earnings.

PepsiCo reported in-line fourth-quarter earnings per share, while revenue of $20.64 billion grew 5.7% year over year and easily topped expectations by $400 million. Further, organic sales growth of 4.3% also beat consensus estimates of 3.7%.

It was a solid fourth quarter, but guidance did come up a bit short. Management sees fiscal 2020 earnings of $5.88 a share on revenue growth of 4% vs. consensus estimates for earnings of $5.95 a share on 4.1% revenue growth.

In that light, it’s actually pretty impressive that PepsiCo stock is down less than 1%, particularly after it just hit a new high in the prior session. That’s likely one reason it drew the interest of the Real Money team, which selected PepsiCo as its Stock of the Day.

Let’s take a closer look at the charts.

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Trading PepsiCo Stock

Daily chart of PepsiCo stock. 

Daily chart of PepsiCo stock. 

When I look at PepsiCo’s daily chart, the bullish momentum really jumps out. Going back to the start of the chart in the bottom left corner, shares gapped higher a year ago on earnings.

From there, it’s been surging higher, as uptrend support (blue line) continues to guide PepsiCo stock up and to the right. However, shares were hitting a level of resistance at $138. It began in September and persisted through year-end. In January PepsiCo shares burst higher on a wave of momentum, running to a recent high of $146.74.

Now what?

Given that the stock is barely down despite a mixed quarter should give bulls some hope. That said, the stock is breaking below its short-term uptrend mark (purple line). Given how steep this mark is, I wouldn’t read it as overly bearish, but it does signal that investors may have lost short-term momentum.

PEP stock is bouncing off the 20-day moving average now and if it’s able to reclaim its prior uptrend mark and hurdle $146.74, then $150 is certainly on the table. However, I would really be keen on seeing a pullback here.

PepsiCo stock has been red hot and a dip would be a warm welcome for investors. Specifically, a decline down to uptrend support (blue line) and/or prior resistance at $138 would be an excellent dip-buying opportunity. To get there though, PepsiCo will need to fall below the 20-day moving average.

Here's the bottom line: Look to see if bulls can muster up a rally over the prior high, putting $150-plus on the table. Below the 20-day moving average sets up a potentially larger decline for investors to buy the dip.