A Relative Strength Play That Could Sparkle: SodaStream

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DELAFIELD, Wis. (Stockpickr) -- When the markets are selling off significantly, as they were were on Monday, I like to scan the equity universe for stocks that are bucking the trend and not going down. Being a trend trader, I want to find which stocks are counter-trending compared with the overall market weakness, because those are the names that are displaying relative strength and could be gearing up to trend significantly higher.

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If the bears can't gain any traction in certain stocks on the large down days, then it's possible that there just aren't any sellers left in those stocks. Of course, just because a stock doesn't follow the herd down on a big down day doesn't mean that the equity is ready to rise. It simply highlights a starting point to do further research on that stock.

The main attraction here is that any stock that doesn't get hit by the bears when they control the market could have something brewing underneath the surface. Stocks are driven by supply and demand, so I want to know exactly which stocks are in demand when the bears are hammering the market lower.

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One stock that I noticed that wasn't going down on Monday was SodaStream (SODA), which engages in the development, manufacture and sale of home beverage carbonation systems that enable consumers to transform ordinary tap water instantly into carbonated soft drinks and sparkling water. This stock has been hit hard by the bears over the last six months, with shares off by 35%.

SodaStream was in the news last week after Whirlpool's (WHR) KitchenAid brand announced that it would sell an at-home soda maker called the Sparkling Beverage Maker, developed by SodaStream. This product is set to go on sale in June at a suggested retail price of $249.99. This is one of what could be many deals that SodaStream is going to enter into soon to fight back against the recent collaboration between Coca-Cola (KO) and Keurig Green Mountain (GMCR) to develop their own at-home cold drink maker.

What's interesting about SODA not going down on Monday -- a day the Nasdaq dropped by over 70 points intraday -- is that this stock is a favorite target of the short-sellers. The current short interest as a percentage of the float for SODA is extremely high at 46.1%. This stock also sports a very low tradable float of around 20 million shares, so almost half of that float is sold short with over 8 million shares in the control of the bears. This is the type of situation that can produce monsters moves higher in very short timeframes if the bears get squeezed out of their positions.

With a plunging Nasdaq on Monday, the shorts had every reason to open fire on shares of SODA and knock this stock significantly lower. The bears should have easily been able to crush shares of SODA and send the stock back below its 50-day moving average, but they were unable to do so. Shares of SODA actually closed up modestly on Monday, which is pretty amazing when you consider the opportunity the shorts had with such a weak market.

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From a technical perspective, shares of SodaStream have been trending range-bound and consolidating for the last two months, with shares moving between $44.88 on the upside and $37 on the downside. This stock has just started to trend back above its 50-day moving average, and its MACD momentum indicator has gone into positive territory, both technically bullish developments. Traders should now watch for continued relative strength in SODA on big down days in the market. Even more important, they should watch of a major breakout trade to trigger that could set off a monster short-squeeze.

Traders should look for long-biased trades in SODA if it manages to break out above some key near-term overhead resistance levels at $43.74 to $44.88 a share with high volume. Look for volume on that move that hits near or above its three-month average action of 1.84 million shares. If that breakout materializes soon, then SODA will set up to re-fill some of its previous gap-down-day zone from January that started above $50 a share. Any high-volume move above more resistance at $50 to $52 will then give SODA a chance to tag $55 to $58 a share.

-- Written by Roberto Pedone in Delafield, Wis.

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At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including

CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.