Intraday and swing scenarios based on price action and volume profile.
COCA-COLA stock: an interesting choice
2020-01-14 • Updated
Warren Buffet approves
On a weekly chart below, you see the Coca-Cola stock price performance. Although it doesn’t look exactly stable, the long-term picture it gives is clearly an uptrend. Especially in the last year, as growth became more aggressive than before. We can see that the Moving Averages lined up in ascending order, with the price being much above and showing yet no sign of a wavy pattern it used to have before. Additionally, Warren Buffet’s Berkshire Hathaway has a big portion of Coca-Cola shares in possession since the 1980s. It may be a good reassurance that this stock is likely to perform well in the long-term (although Mr. Buffet commented that the performance in the last decade is not as good as before). Therefore, we have the fundamentals that this stock is a buy, from a long-term perspective. What about shorter horizons?
Prepare to dive
On the same weekly chart, we can see that the current price of $56 per share rises slightly above the previous high. With that, it makes a clear bearish divergence with the Awesome Oscillator. It makes sense both graphically and intuitively: the price has been high above the Moving Averages for too long – every time that happened, it went down to the 200-week MA to bounce back up.
The same reading is provided by the daily chart below – a bearish divergence foreshadowing the coming drop. So the question here is likely to be not “if” but “down to where”? Observing the previous wavy drops of the Coca-Cola stock price, we can roughly distinguish two types of such scenarios: when the price touches the area of 50-MA and 100-MA, and when it makes a heavy dive into the area of the 200-day MA. In the first case, we can expect the support to be at $54.50, in the second – at $52.50, both adjusted to the expected future position of the indicator in the time of the drop.
Based on these observations, there are two possible scenarios for a trader.
The first one, a standard for the long-term investor, is “buy and hold”. It is “guaranteed” that this stock will eventually rise, so the only thing you have to do is to have it in your portfolio and let it grow. Wait out the temporary drop, and the next one – your patience defines your profit.
The second one is a more active approach – you wait for the drop to take place, and buy once the price reaches the bottom. If you see it drop to $54.50 and start a correction upwards – buy; if you see it dive lower to the 200-MA area of $52.50 and then aim back up – buy. Sell when it gets back to the previous highs or above.
There is a third one, though. But it is riskier. You use the expected bearish cascade to sell higher and buy lower. That means you sell right now, and then wait for the price to go into the bearish move promised by the indications. Eventually, when the price is in the lower areas discussed before, you buy. The obvious risk here is that you make the first step now – before the price makes its move. If it doesn’t act according to the indications, you will be in a weak position. On the other hand, this tactic is the quickest one, and if it works out, it will let you gain the profit at the soonest. The choice is yours.
As you can see, stock market offers plenty of opportunities for a trader. To trade Coca-Cola with FBS, you need to:
- Open the MT5 account in your FBS personal area.
- Make a deposit.
- Download MT5.
- Log in and start trading.
In addition to that, you can learn how to follow earnings reports and trade on these news - they are major corporate performance indicators influencing stock price performace.
Corrective Bearish Scenario: Sells below 38680 with TP1: 38560, TP2: 38500, TP3: 38432 Continuation Bullish Scenario: Buys above 38816 with TP: 39000
Bullish Scenario: Buy between 17515 and 17600 with TP1: 17681; TP2: 17720 intraday, and TP3: 17750 / 18000 in extension. Bearish Scenario in case of breaking the buying zone: Sell below 17500 with TP1: 17469; TP2: 17421, and TP3: 17358 in extension.
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