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A Breakout For Constellation Brands

10/03/07 02:04:28 PM
by Arthur Hill

After breaking triangle resistance with a big surge, Constellation Brands is on the verge of breaking another resistance level to confirm an inverse head & shoulders pattern.

Security:   STZ
Position:   Accumulate

Let's first take a look at the triangle breakout. The stock surged in early August and then settled down to form a triangle. This pattern extends from mid-August to the end of September and represents a consolidation after the sharp advance. This surge created an overbought condition when the stock advanced over 15% in two weeks. The triangle consolidation alleviated the overbought condition and the breakout signals a continuation of the early August surge. See Figure 1.

FIGURE 1: STZ, DAILY. The stock surged in early August and then settled down to form a triangle.
Graphic provided by: telechart2007.
 
Volume and momentum confirm the breakout. On the price chart, the breakout occurred with a long white candlestick, and this reflects a decisive move. In addition, upside volume was above average for the first time since early August, and this shows renewed buying interest. The moving average convergence/divergence (MACD) moved into negative territory as the triangle extended into the second half of September. With the triangle breakout, the MACD is once again in positive territory and momentum favors the bulls.

FIGURE 2: STZ, DAILY. In addition to the triangle breakout, an inverse head & shoulders is taking shape.
Graphic provided by: telechart2007.
 
In addition to the triangle breakout, a nice inverse head & shoulders is taking shape (Figure 2). The left shoulder formed in June, the head in July, and the right shoulder in September. STZ surged above 25 in late June and early August but fell back each time. It is difficult to pinpoint neckline resistance, but I am estimating it at 25. A break above this level would confirm the pattern and project further strength toward 28–30.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
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