Using Pepsi's Premarket Price Action To Trade Q2 Earnings

Even if you do not participate in after-hours and premarket trading, there is excellent information that can be derived from those sessions. The information can be used during the regular session, and a great example of this arrived Tuesday with respect to PepsiCo, Inc. PEP's earnings, making it the PreMarket Prep Stock of the Day.

Pepsi Holding Recent Gains: Pepsi has had a sustained rally off its June 14 low ($154.86). Until Tuesday’s price action, the high for the rebound was made on Monday at $172.80. The highest close for the rebound was made last Friday at $171.88.

From Friday’s and Monday’s price action, there was a potential double top ($172.70 and $172.80). On the downside, Friday’s low ($170.55) was breached on Monday, falling to $170.02, making the area potential support for Tuesday’s session.

Pepsi's Q2 Beat: Before the opening Tuesday, the company reported quarterly earnings of $1.86 per share, which beat the analyst consensus estimate of $1.74 by 6.9%. This is an 8.14% increase over earnings of $1.72 per share from the same period last year.

The company reported quarterly sales of $20.23 billion, which beat the analyst consensus estimate of $19.51 billion by 3.66%. This is a 5.25% increase over sales of $19.22 billion in the same period last year.

PreMarket Prep's Take On Pepsi: When the issue was being covered on the show, it was trading just under $173 and had already established its premarket high of $173.24. Co-host Dennis Dick commented: “It is somewhat of a recessionary proof business and has held up extremely well.”

Pepsi is trading near its all-time high, he said: "I do not want to buy issues at all-time highs in this environment."

The author of this emphasized the importance of the double top and warned to be cautious in buying in that area. Also, investors were encouraged to use the premarket high as a potential target on the upside.

PEP Price Action: Both the current high and low for the day as of 1 p.m. EST were established in the first 5 minutes of the session.

After a much higher open ($173 vs. $170.47), the issue just barely breached the premarket high, rallying to $173.32, and sharply reversed course.

The ensuing decline took the issue through Monday’s low by a small margin, bottoming at $169.77, and it has been on the rebound. 

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