Just How Strong Are Constellation Brands' Charts?

I continue to recommend a reduced long exposure on STZ.

On Mad Money's "Executive Decision" segment Thursday night, Jim Cramer spoke with Bill Newlands, president and CEO of Constellation Brands (STZ) .

The company reported a "terrific quarter" but the stock went down, Cramer said, adding that there seems to be a lot of unjustified skepticism.

Newlands was pleased with the results, too, given the challenges that the quarter brought to the company. That included reduced production out of Mexico for its Corona and Modelo brands as the pandemic hit. However, Modelo proved to be resilient.

The company has momentum, even with so many bars and restaurants closed. As a result, Newlands is excited for the rest of the year. The company's leverage ratio should allow Constellation to consider buying back stock and/or making further investments, he added.

A somewhat recent investment has been Canopy Growth (CGC) , which continues to see momentum in its new cannabis beverage in Canada.

Let's review the charts once again as STZ was upgraded Friday to a "Buy" recommendation by TheStreet's Quant Ratings service.

We looked at the charts on September 29 ahead of earnings and wrote that, "I have no special knowledge of what STZ may or may not report for earnings on Thursday, but the charts and indicators are making me a little nervous of the long side. I would recommend a reduced long exposure."  

In this updated daily bar chart of STZ, below, we can see that prices have turned down for what looks like another test of the 50-day moving average line and maybe the 200-day moving average line.

The On-Balance-Volume (OBV) line has made what appears at this juncture in time to be a lower high. A lower low on the OBV line would tell us that sellers of STZ have become more aggressive.

The direction of the Moving Average Convergence Divergence (MACD) oscillator is right above the zero line and it could be touch and go for the next signal.  

 

In this weekly candlestick chart of STZ, below, we can see that the three most recent candles have upper shadows which tells us that despite the fundamentals traders have been rejecting the highs made on the stock.

 

The 40-week moving average line now has a slightly negative slope and the weekly OBV line shows a late August peak.

 

The MACD oscillator is only slightly above the zero line and has narrowed in September. Overall this chart and the indicators are not as strong as some of the company's drinks. 

 

 

In this daily Point and Figure chart of STZ, below, we can see a potential downside price target in the $166 area.  

 

Bottom line strategy: The market is a discounting mechanism. A stock that does not rally on what seems to be good news is suspect as traders either already discounted the news or they sense weaker conditions ahead. I continue to recommend a reduced long exposure on STZ.

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