In addition to a strong fundamental growth story, Monster Beverage (Nasdaq: MNST) has one of the better-looking charts in the consumer goods space. The energy drink company also looks to be a takeover candidate.

#-ad_banner-#All of this speaks to a higher stock price in the short to intermediate term.

As the energy drink market continues to grow, I can’t help but notice an ever-expanding presence of Monster Energy drinks in grocery and convenience stores. And J.P. Morgan analyst John Faucher recently said the company could be acquired within two to three years.

Frankly, it makes sense. Arguably, the barrier to entry for brewing up a new energy drink is not all that huge. But companies like Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP) could surely benefit from acquiring a well-established brand such as Monster, which brings with it access to a new generation of carbonated beverage drinkers.

A takeover candidate often makes for an interesting trade, but what really puts the odds in traders’ favor is MNST’s charts.

In the multi-year chart, note the ultra-steep slope of the rally in 2011 and the first half of 2012. When a stock’s slope becomes too steep, it often sees a more violent mean-reversion move than a stock that advances in an orderly fashion.

In June 2012, after a nearly 12-month vertical run, MNST finally ran out of steam. Over the next four to five months, it retraced almost exactly 50% of its entire rally from October 2008 to the 2012 top. MNST is a perfect example of a stock that took the stairs up but the elevator down.

Unless a company’s fundamentals have entirely deteriorated, in a general bull market, when a stock that rises too sharply corrects, it tends to be a mean-reversion move, which means that the uptrend has a good chance of resuming.

This was the case with MNST. After the 50% pullback, shares once again formed a series of higher lows and higher highs.

The rally off the 2012 lows has taken place in a fairly orderly channel, which the stock continues to respect. Until MNST breaks below this channel, the near- and medium-term uptrend will remain intact.

On the daily chart below, note that the stock’s 200-day simple moving average offers a good reference point for traders to focus on. A break below there would also likely violate the aforementioned uptrending channel.

Supporting the bull’s case is the stock’s 50% retracement of the rally from the October lows to the February top, which occurred by April and coincided with the 200-day moving average. MNST bounced from there, and on May 9 and again on July 10, marked the daily chart with notably bullish outside days/candles.

Action to Take –>
— Buy MNST above $70
— Set stop-loss at $66.50
— Set initial price target at $80 for a potential 14% gain in two to five months

This article was originally published at ProfitableTrading.com:
Takeover Candidate’s Technicals Signaling Buy Now

My colleague Michael Vodicka has developed a special strategy for investing in rising stocks like MNST. In fact, his technique allows him to buy a stock at the exact low price he wants — while generating huge streams of income. To learn more about his Income Multiplier strategy, click here.