PepsiCo, Inc. (PEP) reports earnings on Oct. 3, with Wall Street analysts expecting profits of $1.51 per share on $16.94 billion in third quarter revenues. The company matched conservative expectations in July's second quarter report while lowering full-year guidance by a penny, triggering a modest sell-off into August. The stock recovered quickly, posting an all-time high near $139 earlier this month before settling around $135.

Food stocks and other dividend plays have regained popularity in 2019, with many investors seeking out higher returns following the mid-year crash in bond yields. PepsiCo's 2.81% forward dividend yield compares favorably with rival The Coca-Cola Company's (KO) 2.94% yield, Pepsi's return so far in 2019 is much higher, at 22% compared to Coke's 15%. The five-year return for Pepsi is even more impressive at 48% compared to Coke's 32%.

It could be tough for the beverage and snack giant to add points after this week's confessional because the 2019 uptrend has reached a resistance level going back to 2014. Long-term relative strength cycles have turned south at the same time, raising the odds for an intermediate correction that could reach the 200-week exponential moving average (EMA), now rising through $111. Conversely, that level may offer an attractive entry for sidelined investors, yielding the next rally wave of the 10-year uptrend.

PEP Long-Term Chart (1993 – 2019)

Long-term chart showing the share price performance of PepsiCo, Inc. (PEP)

A multi-year trend advance stalled at a split-adjusted $21.82 in 1993, giving way to a modest pullback that found support in the mid-teens. It cleared resistance in 1995, posted steady gains into the 1996 high at $35.88, and eased into a sideways pattern that controlled price action for the next six years. A 2004 breakout marked the start of a more fruitful period, with the stock adding nearly 60% into the 2008 peak at $79.79.

The subsequent flight to safety didn't help despite the food industry's reputation as a defensive play, with the stock dropping more than 40% during the economic collapse. It settled at a six-year low in 2009 and turned higher, but buying pressure didn't pick up until 2013, when it finally completed a round trip into the prior high. A breakout in the second half of that year signaled the start of the current advance, which has carved just two modest corrections in the past six years.

Price action during this period has carved a rising channel (black lines), with resistance now located around $136. The stock reached the barrier for the fourth time in June 2019, generating a pullback, followed by a minor breakout at the start of September. The monthly stochastics oscillator has digested these whipsaws with a bearish crossover at the overbought level, predicting relative weakness that's likely to generate a failed breakout.

PEP Short-Term Chart (2016 – 2019)

Short-term chart showing the share price performance of PepsiCo, Inc. (PEP)

The stock completed a cup and handle breakout above the January 2018 high at $122.51 in April 2019 and rallied into the 1.618 Fibonacci extension of the bounce off the December low. This marks a high-odds upside target, while the rally's narrow alignment with the .382 rally retracement level adds reliability to a prediction that price action is more likely to enter a correction than to mount the September high in a channel breakout that targets $150.

The on-balance volume (OBV) accumulation-distribution indicator finally mounted the 2007 high in June 2018 and posted two higher highs into the June 2019 reversal. OBV failed to mount that peak during September run-up into the all-time high, setting off a bearish divergence that adds another red flag to the cloudy technical outlook, also warning that the stock could lose ground during the fourth quarter.

The Bottom Line

PepsiCo stock has been firing on all cylinders in 2019 but could enter an intermediate correction after this week's third quarter earnings report.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.