Constellation Brands owns many brands of beer, wine and spirits including the popular Corona and Modelo beer franchises. The stock closed Monday, Jan. 7, at $170.12, up 5.8% so far in 2019 but in bear market territory at 28.1% below its April 30 high of $236.62. The stock is 8.9% above its Dec. 24 low of $156.25, so its bear market rally is gathering momentum.
Analysts expect Constellation Brands to report earnings per share of $2.04 when the company releases results before the opening bell on Wednesday, Jan. 9. Constellation Brands owns a sizeable stake in Canopy Growth Corporation (CGC), which makes the stock a play in the cannabis industry. Iconic beer brands Modelo and Corona remain among the most popular, so guidance for those segments will be important. Meanwhile, sales of wine and spirits continue to slow.
The daily chart for Constellation Brands
Constellation Brands has been under a "death cross" since Aug. 8, when the 50-day simple moving average declined below the 200-day simple moving average to indicate that lower prices lay ahead. This tracked the stock from $214.41 that day to its Dec. 24 low of $156.25. There are three horizontal lines on the chart – my weekly value level at $155.38, a monthly pivot at $165.22 and my annual risky level at $215.75.
The close of $160.82 on Dec. 31 resulted in $165.22 as my monthly risky level, which is calculated based upon the prior nine monthly closes. Since the stock ended last week above $165.22, this level becomes a monthly pivot. A Suttmeier Pivot has a high probability of being tested again as a magnet during its time horizon, and in this case, it's during the month of January. A monthly level from my proprietary analytics is based on the closes over the past nine months.
The weekly chart for Constellation Brands
The weekly chart for Constellation Brands ended last week negative but oversold, with the stock below its five-week modified moving average of $178.70. The stock is also below its 200-week simple moving average of $173.22, which I consider the "reversion to the mean." The importance of this is that the stock had been above its 200-week simple moving average since the week of Aug. 19, 2011. After holding the 200-week simple moving average at $17.67 in June 2012, the stock had an astronomical gain until setting its all-time high of $236.62 in April 2018.
The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 10.40 this week, up slightly from 8.44 on Jan. 4. The stock is thus below the oversold threshold of 20.00, but it was below 10.00 at the Christmas low, making the stock "too cheap to ignore." The 12 x 3 x 3 weekly slow stochastic reading is the measure of momentum that I choose as most accurate following months of vigorous back-testing after the Crash of 1987. Stochastics are measured on a scale of 00.00 to 100.00, where a reading above 80.00 is overbought and a reading below 20.00 is oversold. This year's downside volatility pushed the reading below 10.00, which implies a stock that is "too cheap to ignore."
The 12 x 3 x 3 represents the calculations that use the highs, lows and closes for each of the past 12 weeks. The 3 x 3 is the modified moving averages that results in two lines. I focus on and show only the slower of the two. The theory is that, as a ticker rises, the stochastic reading rises as it ends the week closer to the week's high. When this diverges and the closes move further below the week's high, the stochastic reading will roll over before the ticker provides an advanced warning to reduce holdings. The opposite occurs in a declining market.
Given these charts and analysis, investors should buy shares of Constellation Brands on weakness to my monthly pivot at $165.22 and then to my weekly value level at $155.38. My strategy calls for reducing holdings on strength to my annual risky level of $215.75.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.