Beer, wine and spirits biggie Constellation Brands (STZ) has seen its stock price lose a lot of fizz in recent weeks on news, including a disappointing earnings report the other day.
Let's check out the charts and indicators to see if this is the time to become a buyer or whether there is further downside to go. Interestingly, TheStreet's Quant Ratings service upgraded its rating on STZ Friday.
In the daily bar chart of STZ, below, I can see that the shares quickly turned lower in early December. Prices quickly broke below the 50-day and 200-day moving average lines. The move lower was a small "measured move" or "A/B move" in that the distance traveled in the first part of the decline was repeated after a two-week pause in mid to late December.
Trading volume surged sharply higher in recent days telling me that traders have voted with their feet. The On-Balance-Volume (OBV) line has declined quickly through December and tells me that sellers of STZ have been more aggressive than buyers. The Moving Average Convergence Divergence (MACD) oscillator went to a sell signal by the middle of December.
In the weekly Japanese candlestick chart of STZ, below, we do not have the current week's price action plotted but last week's decline is very visible with a large red candle (bearish). Prices have held the $210 area a number of times in the past so a weekly close below $210 will be bearish. The 40-week moving average line now has a negative slope.
The weekly OBV line turned lower at the end of November. The MACD oscillator just crossed below the zero line for an outright sell signal.
In this daily Point and Figure chart of STZ, below, I see a potential downside price target in the $191 area.
In this second Point and Figure chart of STZ, below, I used weekly price data. Here the X's and O's give us a price target in the $157 area.
Bottom-line strategy: It may be tempting to buy a sharp dip in a stock that pays a dividend and is considered somewhat "recession proof" but the charts suggest there may be further weakness in the weeks ahead. I would avoid the long side of STZ for now.
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