The article presents a short-term trading strategy focusing on PepsiCo (PEP) and Coca-Cola (KO) stocks. It analyzes their relative performance using 10, 20, and 40-year ratio charts, revealing that Pepsi's relative underperformance compared to Coke is at its most extreme point historically.
The suggested trade is to buy PepsiCo and sell Coca-Cola, capitalizing on the potential for a countertrend move and mean reversion. This strategy is based on the observation that the PEP/KO ratio is further below its 150-day moving average than at any time in the past 10, 20, and 40 years.
The article clearly states that the opinions expressed are solely those of the contributor and do not reflect the views of CNBC or its affiliates. It emphasizes that the information provided is for informational purposes only and does not constitute financial, investment, tax, or legal advice. Readers are urged to seek advice from their own financial advisors before making any investment decisions.
(Check out Carter's worthcharting.com for actionable recommendations and live nightly videos.) A simple, short-term "pair trade" for your consideration: Buy PepsiCo (PEP) ... Sell Coca-Cola (KO) . Three relative performance charts are below. Pepsi's relative performance to Coke (underperformance) is at the most extreme (most pessimistic) as at any time in history. Our thinking here: play for a countertrend move, play for short-term mean reversion. 10-year ratio chart: PEP/KO Further below the 150-day moving average than at any time in the past 10 years. Play for a countertrend move, here and now... our thinking. 20-year ratio chart: PEP/KO Further below the 150-day moving average than at any time in the past 20 years. Play for a countertrend move, here and now... our thinking. 40-year ratio chart: PEP/KO Further below the 150-day moving average than at any time in the past 40 years...play for a countertrend move, here and now... our thinking. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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