Constellation Brands Inc. (STZ) has made a drawn out decline for much of this year but the pace of the pullback has slowed in recent weeks. A bullish divergence between price and momentum is suggesting a rally is possible in the weeks ahead. Let's check the charts and indicators of STZ closer.
In this daily bar chart of STZ, below, we can see what most observers would call bearish. Prices have been making lower lows and lower highs since May and now STZ is trading below the declining 50-day average line and the bearish 200-day moving average line. The volume histogram shows that volume has increased a bit since August suggesting a possible turnover in ownership as some traders are selling while others are buying. The daily On-Balance-Volume (OBV) line has been declining since January telling us that sellers of STZ have been more aggressive but the line looks like it is stabilizing. The Moving Average Convergence Divergence (MACD) oscillator is below the zero line in bearish territory but it has just crossed to the upside giving us a cover shorts buy signal.
In this three-year weekly bar chart of STZ, below, we can see that prices have rolled over and are trading below the declining 40-week moving average line. The weekly OBV line shows only limited weakness the past two months and is not far from its best level. In the bottom panel is the 12-week momentum study which shows higher lows from September to November. This is a bullish divergence when compared to prices making lower lows. This divergence could foreshadow a rally ahead.
In this Point and Figure chart of STZ, below, we can see a top pattern but we can also see that prices are in an area of support and that a rally to $203.43 will start to improve this chart.
Bottom line strategy: Turns to the upside and downside can be subtle but it looks like STZ is giving us some subtle bullish clues. Aggressive traders could approach STZ from the long side on a rally above $203.50. Risk below $194.
