Fomento Economico Mexicano
It's been a good year for Mexican beverage stock Fomento Economico Mexicano (FMX). Year-to-date, shares have rallied more than 31%. But it's how they've rallied, not how much they've rallied that makes this a unique trading opportunity.
Essentially, FMX has been locked in an uptrending channel for more than a year. The channel is significant because it makes the high-probability moves predictable for FMX. In other words, by drawing the dynamic support and resistance lines that bound this stock's channel, we know where shares are likely to hit a wall to the upside and find a bid to the downside. Ideally, the best buying time comes when FMX is near support.
That's the case for a couple of reasons. First, it gives FMX the most room to move higher before hitting resistance (increasing potential gains), and second, it reduces risk by keeping the smallest space possible between your buy price and support. Since a slide below the lower trendline would mean that the pattern is broken, you wouldn't want to own shares anymore anyway - that's why it's a logical place to put a protective stop.If you decide to take this trade, I'd recommend waiting for a bounce off of support before jumping in. It'll cost you a couple points of missed gains, but it will also verify that there are still buyers willing to step in and keep shares in the channel. This stock should see higher ground in 2012. To see this week's trades in action, check out the Technical Setups for the Week portfolio on Stockpickr. -- Written by Jonas Elmerraji in Baltimore.
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