The Coca-Cola Company (KO) shares rose three-quarters of a point on Monday after Bloomberg reported that the beverage giant was in talks with Aurora Cannabis Inc. (ACBFF) to develop CBD-infused functional wellness beverages. While Coca-Cola hasn't made any definitive decisions, the move would follow deals struck by Constellation Brands, Inc. (STZ) and Molson Coors Brewing Company (TAP) with Canadian cannabis companies.
The move also comes shortly after Coca-Cola announced a $5.1 billion acquisition of Costa, a U.K.-based coffee chain. While the fast-growing coffee market could boost revenue over the long term, some analysts are concerned that the entry into the food services market could negatively affect Coca-Cola's operating margins. But these developments point to bold moves into new markets that could significantly change the fundamental picture. (For more, see: Coca-Cola May Foray Into Cannabis-Infused Drinks.)
From a technical standpoint, the stock has moved up since the beginning of the month to retest its prior highs at around $46.50. The relative strength index (RSI) has risen near overbought levels with a reading of 64.61, but the moving average convergence divergence (MACD) experienced a bullish crossover above the zero line. These indicators suggest that the stock could see some near-term consolidation, but the medium-term trend remains bullish.
Traders should watch for some consolidation between upper trendline resistance at $46.50 and the 50-day moving average at $45.37. If the stock breaks out from trendline resistance, traders could see a move to R2 resistance at $47.35. If the stock breaks down from the 50-day moving average, it could move lower to test pivot point and trendline support at around $45.90 – although that scenario appears less likely to occur. (For more, see: How Rich Would You Be If You Followed Warren Buffett Into Coca-Cola?)
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.