PepsiCo, Inc. (PEP) beat bottom-line estimates when it reported results on April 26, but the stock stayed below its semiannual pivot at $137.81. The stock subsequently fell below its quarterly pivot at $135.03 and its quarterly pivot at $135.03, but it held its 50-day simple moving average (SMA) at 129.40.

PepsiCo shares closed last week at $130.14, down 4.8% so far in 2020. The stock is in correction territory at 11.6% below its Feb. 18 high of $147.30 and is in bull market territory at 28.3% above its March 20 low of $101.42.

The company has a diversified menu of beverages and snacks, including Frito-Lay, Gatorade, Quaker, and Tropicana. PepsiCo has beaten earnings per share (EPS) estimates in the past five quarters. The company has an elevated P/E ratio of 23.54 with a favorable dividend yield of 2.89%, according to Macrotrends. 

The daily chart for PepsiCo

Daily chart showing the share price performance of PepsiCo, Inc. (PEP)
MetaStock XENITH

The daily chart for PepsiCo shows the stock above a golden cross that was confirmed on Aug. 16, 2018, when the 50-day SMA rose above the 200-day SMA to indicate that higher prices would follow. Holding the 200-day SMA between Sept. 5, 2018, and Jan. 30, 2019, provided a buying opportunity for the stock.

This provided the force for the stock to set its all-time intraday high of $147.20 on Feb. 18, 2020. This was a test of its annual risky level at $145.70 as an opportunity to reduce holdings. From this high, the stock cascaded below its semiannual pivot at $137.81 on March 6 and below its 200-day SMA the same day, providing the negative momentum to its March 20 low of $101.42.

The V-Shaped rebound was to its 200-day SMA and the quarterly pivot at $135.03 on April 14. The stock failed at its semiannual pivot at $137.81 and moved back below its quarterly pivot at $135.03 and its monthly pivot at $135.03. This is quite a volatile ride that investors could capture it they understand how to use my proprietary analytics and by reading the daily and weekly charts.

The Weekly Chart for PepsiCo

Weekly chart showing the share price performance of PepsiCo, Inc. (PEP)
MetaStock XENITH

The weekly chart for PepsiCo is neutral, with the stock below its five-week modified moving average of $131.16. The stock is above its 200-week SMA, or reversion to the mean, at $117.39. The 12 x 3 x 3 weekly slow stochastic reading rose to 63.20 this week, up from 59.21 on April 24.

Trading strategy: Buy PepsiCo shares on weakness to the 200-week SMA at $117.39 and reduce holdings on strength to the quarterly, semiannual, and annual risky levels at $135.03, $137.81, and $145.70, respectively.

How to use my value levels and risky levels: The closing prices on Dec. 31, 2019, were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each calculation uses the last nine closes in these time horizons.

The second quarter 2020 level was established based upon the March 31 close, and the monthly level for May was established based upon the April 30 close. New weekly levels are calculated after the end of each week, and new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, while annual levels remain in play all year long.

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.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by gains of 10% to 20% over the next three to five months.

Want to learn how to integrate trading levels into your everyday trading strategy? Check out my new publication, 2-Second Trader.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.