For investors who use charts and price action to guide their choices, a methodical process for finding opportunities is important. One method looks for stocks that are both technically sound and forming a particular price pattern. This approach centers on finding equities with a high "Technical Rating," which confirms a good underlying uptrend, and a high "Setup Quality Rating," which shows the stock is moving sideways in a narrow range, possibly preparing for its next move upward. The aim is to find stocks where a solid trend meets a period of pause, providing a more distinct entry point with clear risk.
Constellation Brands Inc-A (NYSE:STZ) recently appeared from such a scan, showing a profile that fits this breakout method. As a top producer and seller of beer, wine, and spirits, the company's stock is now displaying features that technical investors frequently look for.
Technical Strength: A Good Base
The first part of this approach is finding a stock with sound technical condition. Constellation Brands receives a ChartMill Technical Rating of 8 out of 10, indicating a solid and positive trend structure. This score is not given casually; it combines multiple time periods and indicators to evaluate the stock's momentum and position compared to the wider market.
Important elements adding to this rating are:
- Positive Trend Alignment: Both the short-term and long-term trends for STZ are now positive. This alignment across time periods is a strong sign that the stock's momentum is coordinated and can continue.
- Good Moving Average Support: The stock is priced above its important short- and medium-term moving averages (20-day, 50-day, and 100-day SMAs), which are all rising. This forms a series of dynamic support levels below the price.
- Resilient Performance: During the last three months, STZ has recorded a notable increase of over 28%, showing considerable buying pressure and doing better than much of the market.
This high technical rating answers the important question of which stock to examine. It screens for market leaders and stocks in clear uptrends, giving a base of strength from which a breakout can begin. A complete explanation of these technical elements is in the detailed ChartMill technical report.
Setup Quality: The Pattern of Chance
While a solid trend is necessary, timing an entry is also key. This is where the Setup Quality Rating is used, answering the question of when to look at a position. STZ gets a very good 9 out of 10 on this measure, showing a high-standard consolidation pattern.
The present chart shows STZ forming what is often called a "bull flag." This pattern happens after a solid upward move, when the price declines or moves sideways in a narrow range. This consolidation lets the stock absorb its recent gains and gather energy for a possible trend continuation. The high setup score confirms this time of tightening price action, which helps establish clear levels for entry and risk control.
- Clear Resistance and Support: The analysis finds a definite resistance zone just above the present price, between $165.64 and $166.69. A clear move above this area could indicate the start of the next bullish phase.
- Nearby Support for Risk Control: Below the present price, a support zone exists between $160.28 and $161.82, made by coming together trendlines and moving averages. This gives a sensible area to set a protective stop-loss order, limiting downside risk if the breakout does not succeed.
- Supportive Volume Activity: A recent "Pocket Pivot" signal, where the stock rose on volume greater than the highest down volume of the previous ten days, suggests accumulation by larger participants during this consolidation, adding a positive detail to the setup.
A Possible Trading Plan
Based on this technical and setup examination, a specific plan appears. The combination of a solid technical background (Rating: 8) and a high-standard consolidation pattern (Setup: 9) forms a classic breakout setup. A possible entry trigger would be a move above the identified resistance near $166.70, with an initial stop-loss order set below the support zone around $160.30. This establishes the trade's risk from the start, a key part of orderly technical trading.
Find Other Possible Breakouts
Constellation Brands is only one example of the chances this methodical scan can reveal. The method is made to screen the market for similar high-likelihood setups each day. For investors wanting to find other stocks showing solid technicals and encouraging consolidation patterns, you can see the current list of candidates using the Technical Breakout Setups screen.
Disclaimer: This article is for information only and is not investment advice, a suggestion, or an offer to buy or sell any security. The examination is based on technical indicators and past price information, which are not assurances of future results. All trading and investment choices involve risk, including the possible loss of principal. Investors should do their own research and talk with a qualified financial advisor before making any investment choices.
