Soft drink giant and component of the Dow Jones Industrial Average, The Coca-Cola Company (KO) is one of the eight “Dogs of the Dow” for 2019. The stock closed last week at $47.48, up just 0.3% so far in 2019 and up 14.5% from its low of $41.45 set on May 15, 2018. Shares of Coca-Cola gapped significantly lower following its last earnings report delivered on Feb. 14, and this is when the stock started to stabilize around its 200-day simple moving average, which was $40.11 on Feb. 14. The stock set its 2019 high of $49.94 on Feb. 13.
Analysts expect Coca-Cola to report earnings per share (EPS) of 46 cents when the soft drink giant reports earnings before the opening bell on Tuesday, April 23. The stock has an elevated P/E ratio of 22.72 with a favorable dividend yield of 3.37%, according to Macrotrends.
The company continues to diversify away from sugary sodas. This includes waters, teas, coffees and energy drinks. There are several new flavors of coke targeted to the curious soft drink consumer. The Coke Zero Sugar brand has seen favorable demand in recent quarters. The earnings report released on Feb. 14 ended a six-quarter winning streak in terms of beating EPS estimates.
The daily chart for Coca-Cola
The daily chart for Coca-Cola shows that the stock had been above a “golden cross” from Aug. 13, 2018, to April 4, 2019. A “golden cross” occurs when the 50-day simple moving average moves above the 200-day simple moving average, indicating that higher prices lie ahead. When this signal is in play, the trading strategy is to buy weakness to the 200-day simple moving average, which was tested on Aug. 31 at $44.66, on Oct. 11 at $44.67 and on Feb. 14 at $46.22.
A positive reaction to earnings on Oct. 30 prompted strength to the all-time intraday high of $50.84 set on Nov. 20. This day was a downside “key reversal,” as the close was below the Nov. 19 low of $50.25.
The close of $47.35 on Dec. 31 was an important input to my proprietary analytics, and still on the playing field are a semiannual pivot at $46.28 and an annual risky level at $51.51. The close of $46.86 on March 29 was another key input to my analytics, and this resulted in a monthly pivot at $47.50 and a quarterly risky level at $48.74.
The weekly chart for Coca-Cola
The weekly chart for Coca Cola is positive, with the stock above its five-week modified moving average at $46.77 and above its 200-week simple moving average, or “reversion to the mean,” at $44.21, last tested during the week of June 29, 2018, when the average was $43.13. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 40.92 this week, up from 36.14 on April 18.
Trading strategy: Buy Coca-Cola stock on weakness to its semiannual value level at $46.28 and reduce holdings on strength to its quarterly risky level at $48.74 and to its annual risky level at $51.31.
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 semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February and March. The quarterly level was changed at the end of March.
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 shares 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 their time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.