Exercise: KO


Earning Channel


In 1/17 we suggested that you can consider buying KO when it was on its way down from the high of 47.13, but still within the monthly up-channel.

The suggestion was for range bound trading or band trading, for two reasons:

  1. The earning: the earning growth for the future was uncertain
  2. The channel: the long-term monthly up channel has not been broken, but the mid-term weekly chart forms a down channel.

We gave two buying points.

From daily channel: buy at 41.09 at the up-channel buying point.

From weekly channel: buy at 41.83 at the down-channel break-up.

If you follow our advice, you already made some profit.

What now?

It was closed at 42.47 in 03/02.

First, check the earning, it was only one and half month ago since our last discussion when the outcome was uncertain, and so it still is.

Second, check the chart.

1 The long-term monthly up-channel has not been broken but is at its lower wall.

  • The channel buy point is at 43.96
  • The channel break-down line protection is at 39.72. When the line is broken, you should consider cleaning your long position, after checking the fundamentals.

2 The mid-term weekly down-channel has been broken. Most likely, the price movement will be back on track to be within the monthly up-channel

  • The channel break-up for the down channel is at 42.65. Which means we can still buy more if we think the price movement is going back to the monthly up-channel. We will have a better confirmation to see if the daily chart already formed an up-channel.
  • The channel break-down protection is at 38.29.

3 The daily chart forms a short-term slightly up-channel. We prefer to use the daily channel for action taking. However, we’ll adjust the channel trading lines according to the guidance from the weekly and monthly channels.

  • The default channel break-up was at 43.11. If we think the price will bounce back up to the monthly channel as we saw in the weekly channel, we can move the daily channel break-up line down a little, to the same point as the weekly’s at 42.61. It is a place to increase long position.
  • When the price moves back into the daily channel, we have better take some profits at the channel-sell-point at 41.88.
  • The channel break-down is at 39.54. We should use whichever higher from the monthly, weekly, and daily to protect our long position. So, we’ll use 39.72.

The profit taking point could be set at high as the break-up line of the monthly break-up line, at 54.11.  If it does reach 54.11, it is a very good gain at the current market, since many stocks are simply too expensive.

A more moderate gain will be to find a longer weekly channel and sell at the channel-sell-point. From our exercise, we’ll at it at 45.77.

This concludes our exercise for today.

Hope it is useful to you. Good luck.

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