Many analysts scour technology blogs and specialized reports to discover which company will gain a small edge in the race for market share in smartphones or tablets. When looking for tradable stocks, though, it is important to keep in mind that changes in technology dont always involve tremendous feats of engineering or the latest high-tech gadgets. Engineers are working on ways to improve every aspect of life, and that even includes making soft drinks.

SodaStream International (NASDAQ: SODA ) has developed a home beverage carbonation system that allows anyone to transform ordinary tap water into carbonated soft drinks and sparkling water. Its products are available in more than 60,000 stores around the world. With sales expected to top $500 million in the next 12 months, SODA doesnt seem like a threat to the traditional soft drink giants, Coca-Cola (NYSE: KO ) and Pepsico (NYSE: PEP ), for now. But SODA might hurt sales of companies that target bargain hunters, such as Cott Corporation (NYSE: COT ) .

COT makes private-label soft drinks for retailers including Wal-Mart (NYSE: WMT ), which sells COT sodas like Sams Cola and Dr. Thunder. COT also owns the RC bargain brand of cola that is widely available at grocery stores. Private-label juices, teas and energy drinks round out its product lines.

Private-label soft drinks are especially appealing to cost-conscious consumers, the kind of consumer who might be willing to try SodaStream for savings that the company claims could reach $200 to $300 a year. Energy drink savings could be even more substantial with SodaStream products costing as little as $0.25 per serving while COTs energy drinks retail for about $0.90 a serving. Name brand energy drinks can cost $2-$3 per can.

SODA looks like a great company, but the stock might have gotten a little overbought at current levels. However, that companys success does highlight the vulnerability of COT, a stock that is showing signs of weakness while trading near a new 52-week high, making it a strong short sale candidate.

COT has been trading within a rectangle pattern since the middle of last year. A breakdown from the pattern would indicate the stock could fall to $5.59, a decline of about 39% from recent levels. The chart above shows the Momentum of Comparative Strength (MoCS) indicator, which converts relative strength (RS) into a Moving Average Convergence/Divergence (MACD) style indicator. That indicator has turned bearish while COT has moved up in price.

A traditional RS line is shown at the bottom of the chart and the bearish divergence can be seen there as well. Bearish divergences are often seen before large price declines.

The chart seems to be confirming what analysts are saying. Over the past three months, analysts have lowered their earnings forecast for 2012 and 2013. They now expect COT to report earnings per share (EPS) of $0.55 in 2012, $0.09 less than they expected three months ago. For 2013, EPS expectations have dropped to $0.71 from $0.78.

The ability to make soda at home clouds the future for low-priced, private-label sodas. If COT survives the challenges from SODA, the company will still face higher ingredient costs and customers who are likely to be resistant to price increases. This could pressure operating margins and hurt profits.

Based on the fundamentals and technicals, COT is a strong short candidate. Traders looking to short the stock should wait for the price to fall back into the rectangle pattern before entering a trade. A put option can be used to reduce the risk of a short sale, and because risk is capped with an option purchase, that trade could be entered at the market.

Recommended Trade Setups:

— Sell COT short at $8.80 or below

— Set stop-loss at $9.68

— Set initial price target at $5.59 for a potential 36% gain in 6-12 months

— Buy COT May 10 Puts at $1.40 or less

— Do not use a stop-loss

— Set initial price target at $2.50 for a potential 79% gain in 4 months