Click to EnlargeAs I scanned the markets with my Trending123 Pattern Scan powered by Recognia, I noticed that two Latin American beverage stocks — Fomento Economico Mexicano ADR (FMX) (also known as Femsa) and Compania Cervecerias Unidas ADR (CCU) — were both showing megaphone top patterns. This could be an interesting way to play two very similar stocks that are due for a little correction.
As you can see in the charts, these two stocks have seen very similar price action. The recent broadening action tells us that trading has been out of control, but a breakout on the downside suggests we’re starting a more decisive downtrend.
Click to EnlargeWith its broadening price swings, the Megaphone represents a market that’s unstable and out of control. It typically consists of two successively lower lows between three higher highs, and the reversal signal occurs when the price breaks down below the second trough (the lowest lows) as a sign of a more decisive bearish move.
So how can you trade it?
My system is recommending short positions. Short FMX (currently trading at $105.88) for an $85.00 – $89.00 target, and short CCU (currently trading at $29.99) for a $25.80 – $26.60 target.
InvestorPlace advisor John Lansing tracks the charts all day and offers expert technical analysis in his day trading, options and trading services: Power Trading at the Open, Parabolic Options and Trending123. Trending123 members receive access to the Trending123 Pattern Scan powered by Recognia free as part of their membership. For more information on which service is for you click here.