Constellation Brands Is Declining Towards Its ‘Reversion To The Mean’

Constellation Brands (STZ) set its 52-week high of $258.00 on January 6 on a positive reaction to its latest earnings report. After the high was set the stock plunged on profit-taking. The low for this day was $242.66, a decline of 5.9%. A daily downside ‘key reversal’ is considered a sell signal. The stock shifted from ‘buy on weakness’ to ‘sell on strength.’

A stock’s “reversion to the mean” is the 200-week simple moving average, which is at $202.29.

In the morning of February 15, shares of STZ failed to hold its quarterly pivot at $232.78 and its 200-day simple moving average at $228.28. The downside risk is to its monthly value level for March at $215.54.

At $222.20 the stock is down 11.5% year-to-date and is off 13.9% from its January 6 high of $258.00. STZ is 7.2% above its September 7, 2021 low of $207.35.

The stock is not cheap! Its p/e ratio is 24.85% and its dividend yield is just 1.15%. Constellation Brands has missed earnings-per-share estimates twice in the last three quarters.

Shares of STZ are under pressure as merger talks with Monster Beverage (MNST) continue. This may take several more weeks to be confirmed.

The Daily Chart for Constellation Brands

Constellation Brands had a bear market correction of 15.2% from $244.75 on May 3, 2021 to $207.35 set on September 7, 2021. This was followed by a bull market rally of 24.4% to the high of $258.00 set on January 6, 2022. Today we are in the midst of a bear market correction of 14%.

This chart shows that both death cross and golden cross formations do not work all the time. A death cross occurred on August 23, 2021, which ended with a golden cross set on December 21, 2021. Both signals were false. What this indicates is that shares of STZ are in a huge trading range.

Within this range is the 200-day simple moving average now at $228.28.

The highest horizontal line is this week’s risky level at $241.33. The second horizontal line at $232.78 is in play for this quarter. Moving lower on the chart is the monthly value level at $215.54 as the next horizontal line. The lowest horizontal line is the semiannual value level at $202.42.

The Weekly Chart for Constellation Brands

The weekly chart for Constellation Brands has been negative since the end of January. The stock is below its five-week modified moving average at $235.05. The stock is well above its 200-week simple moving average or reversion to the mean at $202.29. The 12x3x3 weekly slow stochastic reading is declining at 47.14. Remember that stochastic readings scale between 00.00 and 100.00 with readings above 80.00 overbought and readings below 20.00 oversold.

Trading Strategy: Buy Constellation Brands on weakness to its monthly and semiannual value levels at $215.54 and $202.42, respectively. Add to this position at its reversion to the mean at $202.29. Reduce holdings on strength to its quarterly pivot at $232.78.