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Mexican stock pair

April 16, 2012

16 April

Here is an example of a stock poised to continue its outperformance. Its relative strength has consolidated over the last eight months, so tightening the Bollinger Bands.

The stock is an ADR: Coca-Cola FEMSA (KOF), the Mexican bottler of said beverage and others. KOF came up on a scan for stocks whose relative strength against the S&P 500 Index has the tightest Bollinger Bands for the last three years. I’ve shown KOF against the iShares Mexico (EWW). The ratio also meets that criteria, plus the currency effect of the US$ to Peso rate is removed from consideration.

Kofeww

Unlike my previous Bollinger Band example, this clearly has a rising moving average, so the expectation is for continuation higher. Being a consumer staples stock, it is defensive, so tends to outperform EWW when the market is falling, or at least not rising strongly.

The entry criteria is an end of week close above the band and an expansion of the bands. The bands are still contracting quite steeply so this may take several weeks to set up.

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