Coca-Cola (NYSE: KO), the most successful soft drink in history, has always been at odds with Pepsi (NASDAQ: PEP), the sweeter, higher caffeine imitator that came out 12 years after Coke did.
And since they were both invented, soda pop drinkers have been split into two camps. Sure, fans of one brand can tolerate the “other drink” occasionally if they’re forced to.
But the truth is that they’ll always prefer one to the other.
How about you?
It’s one of the world’s most polarizing questions. Picking the “wrong” soda can often be seen as a tongue-in-cheek character flaw by Coke or Pepsi die-hards.
And sure enough, that rivalry extends to the stock market, where KO shares are screaming upwards following a glowing Tuesday morning earnings report.
Business is booming in Coca-Cola-land, so of course, PepsiCo shares had nowhere to go but down.
That might be disappointing for PEP bulls, especially after share prices set a new all-time high just a few weeks ago.
But as usual, within the suffering of overzealous bulls lies opportunity. This time, it happens to be in the form of a bearish trend reversal that might just be getting started.
In the daily candlestick chart above, you can see that PEP has just broken through key support at $130.76. It technically happened three trading sessions ago, and since then it’s attempted to make a recovery after bouncing off the lower Bollinger Band (BB).
And normally, I would never consider shorting a stock that’s recently made contact with the lower BB.
Even worse, stochastics are buried, suggesting that PEP is already oversold.
However, the chart is still giving us signals that share prices want to fall, even if the indicators I’ve highlighted aren’t abundantly clear.
Most important, of course, is the actual price action itself. After breaking through key support, PEP shares failed to recover. As a result, a new lower low was set, which is a universal downtrend indicator.
In addition, a triple top was formed, starting all the way back in early June. Double and triple top formations often precede a trend reversal – something that looks likely in this case.
And after setting a new all-time high in June, PEP shares have done nothing but chop sideways.
Now, we’ve got our first signal of a downside breakout. This stock could’ve gone either direction, potentially breaking upwards as well. But on the heels of some great KO earnings, investors began panic selling.
So, if I was planning on shorting PEP, I would set my trade to trigger just below the low of the last four candles (including the current candlestick) at $129.40.
It’s not a setup I’d typically go after, but in light of some really strong indicators – particularly the triple top and sideways chop breakout – it’s almost too good to pass up.
And who knows, if it pans out, this trade could end up converting me into a Pepsi drinker.
Even if share prices are sinking.
