Suri Duddella describes a potentially profitable breakout trade in these two iconic beverage companies.
The beverage industry has seen a major downturn in 2020 due to the closure of restaurants, sporting events and parks due to the Coronavirus pandemic. In the summer, as sports, music festivals and other community activities have been canceled the sector has suffered. However, in some areas these type of events have started to resume and influence beverage stocks with small bullish trends.
Here is a list of Beverage stocks and their performances in 2020.
Beverage Stocks Year to Date performances.
Trading Rectangle Channel patterns
Rectangle Channel patterns are formed by price action between two key trendlines bound by multiple equal (near) highs and lows. The duration of the pattern can be few days to months. Longer duration patterns are considered to be more reliable. The pattern must have at least two pivots (equal highs or equal lows) on each of the trendlines. The price breakout can occur in any direction from the pattern, but the general belief is price may breakout in the same direction as the prior trend before the pattern formation. The volume inside the pattern is non-decisive, but volume tends to increase during the breakouts.
Trade: A trade setup occurs when price closes outside the trend line (upper or lower) at least two bars signaling a breakout. Trades are entered on a follow-up bar at high above the breakout bar or low below the breakdown bar.
Target: Profit targets in Rectangle Channel formations are based on the depth of the rectangle pattern. Targets are usually set at 70% to 100% of the depth of rectangle from the trade entry.
Stop/Loss: Rectangle patterns fail when prices retrace into the middle of the rectangle channel. Place a stop order just below the middle of the channel (see chart below).
Coca-Cola Co. Rectangle Channel Pattern
Coca-Cola Co. (KO) is trading in a rectangle chart pattern on its daily chart between the upper trendline of $49.63 lower trendline of $43.36 (see chart below). A long trade may be entered if price breaks above the upper trendline with a stop below the mid-channel level of $46.50 and a short trade may be entered on a break below the lower trendline with a stop placed just above the mid-channel. Upside Breakout targets are $52.80 and $55.90; downside breakdown targets are $40.20 and $37.10.
Pepsico Inc. Rectangle Channel Pattern
Pepsico Inc. (PEP) is trading in a rectangle chart pattern on its daily chart between the upper trendline of $138.53 and lower trendline of $129.10. A long trade may be entered if price breaks above the upper trendline with a stop below the mid-channel level of $134.32, and a short trade may be entered on a break below the lower trendline with a stop placed just above the mid-channel. Upside breakout targets are $142.70 and $146.90; downside breakdown targets are $124.70 and $120.70.
Watch Suri’s archived presentation “How to Trade Chart Patterns With Market Context,” from Friday June 12 as part of the New MoneyShow Virtual Event. Find more of Suri’s work at surinotes.com.
