STOCK:  Call Options on PepsiCo (PEP) for the Week

PepsiCo (PEP) is one of those stocks that is going to turn bullish in the coming week, owing to the release of important tidbits of financial data from around the world. For starters, PepsiCo has performed better than Coca-Cola Company (KO)  in 2015, with a 3.2% year-to-date growth compared to Coca-Cola's stock price plunge of 1.1%. At present, the forward price/earnings ratio for PepsiCo is 20.9, compared to Coca-Cola Company’s 19.1. The price of PepsiCo Inc. is $102.19 (November 2, 2015). The company's market capitalisation is $148.88 billion with a dividend of 2.81 and a yield of 2.73%. The stock has lost 0.38% in the past 5 days.

However, the long-term prospects for the stock are positive because PepsiCo is a company that understands market diversity. The company's chief brands are clearly separated into products that are good for you, better for you and best for you, with multiple product lines and categories to satisfy market preferences. The consumer market has changed rapidly from its preference for carbonated sugary drinks to healthier food sources. In this vein, PepsiCo is leading the way and its earnings certainly reflect that. I definitely rate the stock as a buy, given that its strengths outweigh its weaknesses on multiple fronts. These include PepsiCo's ROE (Return on Equity), growing profitability and a stable stock price. While net income has been sub-optimal, the strength of the stock is certainly its saving grace. Analysts across the board recommend traders go short on Coca-Cola company and long on PepsiCo.

Reasons for bullish sentiment on PepsiCo:

• 3-year growth of 48.14%
• 1-year growth of 6.84%
• 3-month growth of 5.75%
• Year-to-date growth of 8.07%

On a rating scale of 1.0 (strong buy) to 5.0 (sell), the mean recommendation this week for PepsiCo is 2.2. This places the stock firmly in the strong buy sector, and that's precisely what I recommend for binary options traders. The stock has a high-price target of $111 and a low price target of $83, with a mean target of $104.70. The latest recommendation by Sterne Agee CRT in July 2015 was an upgrade to a buy. Based on the current weakness of competing brands, and the reduction in carbonated drink taxes in Mexico due to a public outcry, sentiment looks bullish for PepsiCo.

INDEX: Consider Put Options on the S&P 500 index

Just recently we saw the bulls charging on the Nasdaq (QQQ) with the release of earnings reports from Google (GOOG), Amazon (AMZN), Facebook (FB) and Apple among others. The Nasdaq rallied on the back of positive sentiment from these technology companies, although there was tempered enthusiasm with Apple (AAPL) given the weak sales of its latest product lines. However, the energy companies are likely to impact negatively on the performance of the Nasdaq this week as earnings reports are going to be released. Guidance for tech companies has largely been positive, and already 67% of S&P 500 companies have beat bottom line expectations with earning surplus figures of +3.4%. However, on the flipside we are going to see at least a 65% decline (YoY) in energy companies’ performance.

This is largely a result of crude oil price weakness owing to oversupply, the shuttering of many shale oil companies in the US, the collapse of Venezuela’s energy sector and the potential inclusion of millions of barrels of crude oil from Iran. Oil prices are lagging, and this is likely to continue well into mid-2016, perhaps beyond. In fact, we can expect declines in the industrial sector of 3% and in the materials sector of at least 16%. At the close of the trading week, the S&P 500 index lost 0.5% to end the day at 2079.36. Overall, there is still plenty of bullish sentiment for the Nasdaq which posted its best monthly increase in 4 years. Analysts are expecting that the supply/demand balance could be restored if the oil price increases to the $60 – $80 range. Based on that, we are far away from their price target and weakness will continue.

COMMODITIES: Consider Put Options on Crude Oil

Manufacturing weakness in China is going to hurt the global economy – there is no doubt about that. Last week I suggested that binary options traders go short on crude oil, and I'm going to stick to my position for this week too. The reason being, manufacturing data from China has been released and this is likely to further depress the demand for crude oil.  October was the third successive month that manufacturing activity declined in China. This gives credence to the claims that sharp contractions are a reality that China has to deal with. In fact, the PMI index for manufacturing was recorded at 49.8 during the month of October. Any figure beneath 50 is contractionary by nature and is a bearish signal for the global commodities markets, notably crude oil.

There is tremendous downward pressure on the Chinese economy and the massive decline in imports and drop in exports are indeed cause for concern. What happens in China impacts heavily on the economies of emerging market countries and indeed the commodities markets as a whole. That the Chinese Central Bank (PBOC) has reduced interest rates 6 times in 1 year is indeed evidence of the deep concern that exists in China. On a positive note, there is the hope that Q1 2016 will yield a strong resurgence for the Chinese economy in which case we can expect more call options on crude oil to be taking place. Despite the short-term rally in the crude oil prices reflected by the aforementioned graphic, we can expect some negative sentiment to filter through in this upcoming trading week.

CURRENCY PAIRS: Consider Going Short on EM Currencies

Last week, the Fed released its FOMC statement regarding interest-rate hikes. That the Fed was expected to maintain interest rates at the current level of 0.25% came to pass, however it was the omission in the Fed statement that has rattled the emerging markets once again. The decision to leave rates at the current levels was not accompanied by any reference to, or mention of the precarious predicament of emerging market economies or China. This tends to indicate to analysts like myself and others who trade currencies that the Fed is not concerned about the potential domino effect of weakness from one part of the world impacting on the US domestic economy. As such, market anxiety returned to the emerging market currencies, and they immediately traded lower against the USD. This is likely to continue to be the case for the next 4 to 6 weeks until the next Fed meeting on December 15/16 when it is generally accepted that the Fed rate hike will come to pass. We see clear evidence of this in the strength of the USD and the declines taking place in emerging market currencies across the board.