The food and beverage segment of the financial markets is often overlooked by retail investors in favor of areas that offer storylines that are more lucrative and show potential for extreme upside return. However, the stability and predicable nature of the business within the food and beverage sector offer an interesting dynamic during periods of lofty valuation and increased talk of a potential sell-off. In this article, we'll take a look at three charts from across the food and beverage sector and try to determine why traders are starting to bet on a move higher over the final months of 2019 and likely into 2020.
Invesco Dynamic Food & Beverage ETF (PBJ)
It has proven to be a good year in 2019 for trend traders who follow the food and beverage sector, as shown by the chart of the Invesco Dynamic Food & Beverage ETF (PBJ). As you'll notice below, the price has been trading within an ascending channel pattern since January, and the dotted trendlines have provided predictable levels for those looking to position buy and sell orders.
Followers of technical analysis will look to buy near the lower trendline and sell on a move toward the upper resistance. The proximity to the lower trendline is currently creating a risk-to-reward scenario that is favorable for the bulls. Buy orders will likely be placed near current levels in anticipation of a move higher. Stop-loss orders will most likely be placed below the dotted trendline or the 200-day moving average, depending on risk tolerance.
PepsiCo, Inc. (PEP)
One of the top holdings of the PBJ ETF that will likely be closely watched by active traders over the final months of 2019 is PepsiCo, Inc. (PEP). As you can see from the chart, $134 has acted as a strong level of support and resistance over the past several months. Based on the recent bounce off of the trendline, traders will likely use the move as a sign that the bulls are in control of the momentum.
As an added level of confirmation, traders will want to note how the support of the dotted trendline also coincides with the 50-day moving average, which is a common indicator used for determining the direction of the long-term trend and for many when figuring out the placement of stop-losses. Traders will likely hold a bullish outlook on Pepsi stock until the price closes below $134.
Mondelez International, Inc. (MDLZ)
Another food and beverage company that has posted a strong performance so far in 2019 is Modelez International, Inc. (MDLZ). As you can see from the chart below, the bulls are in clear control of the long-term momentum, and the price has been undergoing a period of consolidation since early summer.
Based on the ascending triangle pattern, active traders will likely set their buy-stop orders above $56, which would likely act as a catalyst to a strong move higher. From a risk management perspective, stop-loss orders will likely be placed below the lower trendline or the 200-day moving average in case of a sudden shift in fundamentals or market sentiment.
The Bottom Line
A strong performance by food and beverage companies so far in 2019 has largely gone unnoticed by retail investors, many of whom tend to favor more lucrative market segments. However, as discussed above, the positions of key trendlines are suggesting that the move higher is set to continue for the remainder of 2019 and most likely into 2020.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.