Coke Breaks Higher After Solid Earnings

Published on Tuesday, 07 February 2012 16:50 Written by David Becker

New York, February 7^th (TradersHuddle.com) – Before the opening bell, Coca-Cola (NYSE: KO) reported earnings of 1.7 billion, or 72 cents per share, for the 4th quarter of 2011. Profits were down from $5.8 billion, or $2.46 per share, a year earlier. Removing restructuring charges and other items, earnings were 79 cents per share. Analysts had forecast 77 cents for the company.  Revenue increased 5% to $11.04 billion. The company was helped by higher prices, strength overseas and solid results from the Coca-Cola brand, juices and teas.

Coke's stock price surged higher, initially surging through resistance at 68.50.  Price action has now filled a gap created in January, and could continue to move higher.  Target resistance is seen near trend line resistance created by the highs made in September and December near 70.70.  Support on Coke is seen near the 50-day moving average at 67.90, and then the 200-day moving average near 67.00.

Of note, the MACD (moving average convergence/divergence indicator), had a crossover where the spread between the 12-day moving average and the 26-day moving average crossed above the 9-day moving average of the spread.  This is an indication of a change in momentum from consolidation to upward strength.  The Index has now moved above the zero line, which is a reflection of the change in the spread.

The relative strength index (RSI) turned higher moving up above the 55 level after consolidating near the 50 index level during the past 2 months.  KO's consolidation pattern will allow the 20-day moving average to cross below the 50-day moving average which is generally a negative sign, and traders should pay attention to the conflicting trend indicators.

Price action surged above the upper end of the Bollinger band range created by the 20-day moving average and the 2-standard deviation range.  Despite this move to an overbought range, the prior narrowing of the bands suggests that the market could continue to rally.