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Market Trend: Still Up - But Watch For June

 

Jul 21 2011 / Stock - PepsiCo Inc - Stock Symbol - PEP

Pepsi Stock - Retrenchment Finally!

 
 

Pepsi Stock Falls On Earnings Warning

Readers may remember my writing back on May 21 at Pepsi Stock. Back then I indicated that PepsiCo Stock was way over valued. I have learned from years of trading that when a stock becomes over valued, it is time to step back, go to cash and wait for opportunity.

That opportunity came today when PepsiCo announced their second quarter 2011 earnings. While the earnings were up 20 percent to 1.17, the earnings were mid-range within the expectations of analysts. However the stock fell after the company announced that profit growth this year would be lower than had previously been estimated.

PepsiCo is the world's largest snack-food maker and the news sent Pepsi stock down over 4% at one point.

Let's look at some Pepsi Stock charts. Below is my chart from May 23 2011. After May options expired out of the money, I indicated that I believed Pepsi stock was over valued and I closed my trade waiting for the stock to fall.

Pepsi Stock - May 23 2011 stock chart


Here is PepsiCo Stock today. This is the great thing about having a handful of stocks to watch. Any kind of activity, I can jump in right away. I had been waiting for $65.00 on Pepsi so almost two months. Today in the morning when the stock hit $65.00, I bought 500 shares. Within minutes it fell to $64.90 and I sold August 20 $65 puts. A few seconds later it was down to $64.85 and I sold 5 more puts, this time for September 17 expiry at $62.50. By the close Pepsi stock had recovered to $66.00 and I sold my 500 shares.  You can view today's action in my ongoing PepsiCo trade here.

Pepsi Stock Chart - July 21 2011


Below is the 1 year PepsiCo Stock Chart. We are back into reality and I am comfortably selling puts again at the $65 and $62.50 strikes.

PepsiCo Stock Chart - July 2010 - July 2011

Pepsi Stock Investment Summary

Patience is a strategy that many investors forget. I believe it is important to study charts and determine based on chart patterns and long term earnings potential where a stock's over valuation rests. With Pepsi stock it became obvious to me that the shares were over valued once they reached above $68.00 and definitely above $70.00.

Despite being out of the stock for two months, this did not hurt my portfolio and now today thanks to the sudden drop in Pepsi I have earned a very good return due to the increase in volatility brought about by investors dumping shares. This all goes back to my strategy which I have discussed a number of times. I pick quality companies, learn everything I can about them, chart them and follow those charts. I pick under and over valuations ranges and I do not stray unless the stock has indeed set a new higher trading range. Because of my strategy I have no concerns when one of my favorite stocks is falling. Instead I know exactly where I would be happy to own the shares. As I indicated back on May 23rd, Pepsi needed to fall to $65.00 for me to be interested in the stock again.

When it fell today the plan was set in motion back on May 23rd. Therefore it was easy to step in and buy shares and sell puts. I knew that a pullback this dramatic in a stock like Pepsi would be an opportunity and I did not doubt the stock would closed back above 65.00 when I bought my shares. When investors hear about other investors picking stocks at bottom prices, they often cannot figure out how this can be done consistently. But it is actually quite simple because those types of investors have already put in place their plan and are waiting fotr the opportunity to put it into play. Indeed this was an opportunity for me just like the opportunity back on March 17th in Coca Cola Stock when it fell.

While other investors like to chase the latest trend or hot stock, I still make a very good return, jumping into opportunities as they present themselves on my favorite blue chip stocks. Because of this, I never need worry about "missing" out on profits and thereby chase the latest hot stock or trend. Instead I know that stocks move around a lot and by having patience and remaining consistent with my investing strategy, opportunities will always present themselves.

Pepsi Stock was one such opportunity today.

GO TO PEPSI TRADE FOR JULY 21 2011

 
 

 
 

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