Pepsico’s “Bubble” Is Bursting

Stocks fell slightly today after opening significantly higher. The Dow and S&P both finished with minor losses while the Nasdaq Composite clung to a small gain.

Dip-buyers became intraday peak sellers after Treasury yields spiked. The 10-year rate soared to a daily high of 3.988%, sending stocks sharply lower this morning despite dovish comments from a key Fed official.

Chicago Fed President Charles Evans said in a morning interview that he remains “cautiously optimistic” about the US economy’s chances of avoiding a recession. When asked if the Fed was going overboard with its hikes, he responded:

“Well, I am a little nervous about exactly that.”

“There are lags in monetary policy and we have moved expeditiously,” Evans said.

“We have done three 75 basis point increases in a row and there is a talk of more to get to that 4.25% to 4.5% by the end of the year, you’re not leaving much time to sort of look at each monthly release.”

Bulls obviously loved that. Evans continued:

“Again, I still believe that our consensus, the median forecasts, are to get to the peak funds rate by March — assuming there are no further adverse shocks. And if things get better, we could perhaps do less, but I think we are headed for that peak funds rate,” he said.

“That offers a path for employment, you know, stabilizing at something that still is not a recession, but there could be shocks, there could be other difficulties.”

“Goodness knows every time I thought the supply chains were going to improve, that we were going to get auto production up and used car prices down and housing and all of that something has happened. So, cautiously optimistic.”

This led to the big (but temporary) morning rally. Hopes of a bullish session were dashed by rising yields, and later, massive damage to Nord Streams 1 and 2. Explosions were recorded by Sweden at the site of NS2 this morning. Several hours after, additional damage was reported at NS1.

European governments and the Russian government believe the damage is the result of sabotage. The European Union blames Russia for the attack despite the fact that Russia could simply shut off gas flows instead of destroying the pipeline. Russia says the US carried out the attack to further increase the EU’s financial dependence on the US.

Swedish police launched an investigation into the matter this morning.

And, while we await the results of that investigation, bear setups continue to emerge. Pepsico (NASDAQ: PEP) closed lower today after setting several lower highs over the last few weeks. PEP also closed below its 10-day moving average this afternoon, right near support (yellow line).

The stochastic indicator suggests that the stock has room to fall, too.

For those reasons, it might make sense to take PEP short with a trade trigger of $163.58, below today’s low and support, as the general market attempts to avoid a deeper selloff as well.


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