Pepsi Stock Tests Key Chart Support Ahead of Earnings

PEP stock has pulled back to a crucial technical level

Managing Editor
Feb 12, 2018 at 12:17 PM
facebook X logo linkedin

PepsiCo, Inc. (NASDAQ:PEP) is slated to report fourth-quarter earnings before the open this Tuesday, Feb. 13. The stock has a history of muted earnings reactions, according to Trade-Alert; over the past eight quarters, PEP has averaged a one-day post-earnings move of just 0.5%, regardless of direction. This time around, however, the options market is pricing in a bigger-than-expected post-earnings price swing of 4.2%.

Like many equities right now, PEP's short-term implied volatility (IV) is remarkably inflated. The current 30-day at-the-money IV checks in at 22.9%, in the 99th percentile of its annual range -- indicating that short-term options have rarely been more expensive, from a volatility standpoint. To put that implied share price move in perspective, PEP's 30-day realized volatility is at a new annual high of 20.5% as of this writing.

On the charts, Pepsi stock pulled back with the broader equities market last week. At Friday's intraday lows, the stock was down more than 11% from its Jan. 23 record high of $122.51. Now, however, the security is testing its 100-week moving average, which currently coincides with a 50% Fibonacci retracement of its December 2016 low to the January high.

Following the sharp pullback, PEP is recovering from a drop into oversold territory. Its 14-Day Relative Strength Index (RSI) stands at 32, up from a low of 22 late last week. At last check, the equity was up 0.7% to trade at $111.93.

Fib Levels PEP

Looking toward sentiment data, PEP's Schaeffer's put/call open interest ratio (SOIR) of 0.34 is docked below 95% of comparable readings taken in the past year. This low reading suggests that short-term speculators have rarely been more call-skewed toward the stock during the past 12 months.

Analysts are also relatively upbeat. Susquehanna today upped its price-target on PEP to $140 from $137, implying expected upside of about 26% from Friday's close. More broadly, eight out of 14 analysts tracking Pepsi shares have handed out "buy" or better ratings.

So while the technical stage is set for a PEP rally, there's a healthy amount of optimism priced into the stock already. Unless the food giant unveils a major upside surprise, we might simply see a quiet continuation of the equity's longer-term uptrend following the report. If so, traders who bought the stock's pricey pre-earnings call options could wind up disappointed, even if the directional move is in their favor.


Unlock Weekend Profits with Chris Prybal's Favorite Strategy Up +487.5% in 2024

With the markets going left, right, and sideways, you need to have a plan now more than ever. 

Expert Trader Chris Prybal is no stranger to volatility, and has mastered finding big stock rallies while other traders aren't looking over the weekend. Rallies that produced gains like +207% on RTX calls, +236% on MARA calls, and +238% on NET calls.

A few simple moves on Sunday at 7pm could be the “Secret Sauce” your portfolio needs to not just stay afloat, but make unprecedented gains in this turbulent market.

Don’t sit on the sidelines, beat the market with Chris Prybal's strategy. Join him now!




Rainmaker Ads CGI