Dow component The Coca-Cola Company (KO) posted an all-time high above $59 on Friday, one day after the beverage giant filed a solid fourth quarter 2019 report that exceeded conservative revenue estimates. Revenue grew an impressive 28.2% year over year, highlighting the success of Coca-Cola's continued diversification away from basic carbonated drinks. In-line fiscal year 2020 guidance also pleased shareholders, who have benefited from strong stock gains in the past three months.
The positive reaction also signaled a flight to safety out of growth stocks and into dividend-payers that can withstand a downtick in U.S. and world economic growth. The coronavirus outbreak may be speeding up this rotation, which is common after the market's widely held names post outsized gains, as they have since the fourth quarter of 2019. Even so, Coca-Coca stock has been an outstanding performer since the first quarter of 2019, gaining more than 30%.
The forward dividend yield currently stands at 2.74%, which is attractive for a stock at an all-time high. In addition, bullish price action has finally cleared 1998 resistance after a four-year testing phase, opening the door to a long-term uptrend that could reward investors into the middle of this decade. Even so, the majority of market players are likely to pass on this slow-mover, looking for greater volatility and potential upside.
KO Long-Term Chart (1985 – 2020)
An uptrend posted historic gains between the 1980s and 1998, with the company entering new markets around the world after the fall of Communism. The rally ended in the mid-$40s after posting four stock splits, giving way to a steep pullback followed by a persistent downtrend that ended in the upper teens in the first quarter of 2003. Subsequent buying pressure faded quickly, generating 2004 and 2005 retests that completed a triple bottom reversal.
A rally into 2008 failed at the 50% sell-off retracement level in 2008. The stock plunged during the economic collapse, finding support just 22 cents above the 2003 low in March 2009. It returned to the 2008 high in 2010 and broke out, entering a sturdy uptrend that finally completed a round trip into the prior century's peak in the third quarter of 2014. The stock reversed immediately, reinforcing resistance ahead of two failed breakouts into the end of 2017.
The stock lifted above 1998 resistance one last time in the summer of 2018, setting the stage for a successful test at new support in February 2019. The rally trajectory then increased substantially, with a solid thrust into the mid-$50s, followed by a breakout above that resistance level just three weeks ago. This sequence of higher highs and higher lows bodes well for strong gains in coming quarters.
The monthly stochastics oscillator entered a buy cycle from the panel's midpoint in April 2019 and reached the overbought level in July. An October sell signal failed to increase downside pressure, and the indicator has turned higher once again, but the new buy signal hasn't been confirmed. Even so, downside risk has been reduced by the consolidation into year end, with strong support just three points below Friday's closing print.
KO Short-Term Chart (2018 – 2020)
The on-balance volume (OBV) accumulation-distribution indicator has roughly tracked a rising trendline (red line) since 2012, posting a series of new highs. OBV is now situated relatively close to that line, suggesting an intermediate top in the coming weeks. In addition, the pattern since May 2018 has carved an Elliott five-wave advance that is now engaged in a fifth and final rally impulse. Taken together, these technical elements suggest that late-to-the-party shareholders may have to sit through a multi-month consolidation before profiting from this market leader.
The Bottom Line
Coca-Cola posted an all-time high after strong quarterly results, but the stock may be close to a reversal and pullback into the mid-$50s.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.