Constellation Brands Bullish Engulfing Pattern and 50-Day MA Crossover Drive 2.92% Rally as $144.33 Resistance Looms

Candlestick Theory

Constellation Brands (STZ) has exhibited a two-day rally with a 2.92% gain, marked by a bullish engulfing pattern on the second day (October 8). This pattern, where the second candle’s body fully covers the prior bearish candle, suggests strong buying pressure. Key support levels are identified at $138.71 (October 6 low) and $134.67 (September 30 close), with resistance at $144.33 (October 8 high). The recent candle’s upper shadow near $144.33 indicates temporary resistance, while the close near the high reinforces bullish momentum. A break above $144.33 could target the next resistance at $147.60 (October 7 high), but a close below $138.71 may trigger a retest of the $134.67 level.

Moving Average Theory

Short-term trends (50-day and 100-day moving averages) indicate a potential bullish crossover, with the 50-day MA (calculated from recent data) approaching the 100-day MA. The 200-day MA, a critical long-term trendline, remains in a bullish zone above $134.67. The stock’s current price of $142.76 sits above the 200-day MA, confirming an uptrend. However, the 50-day MA may need to decisively cross above the 100-day MA to solidify a golden cross. Divergence between the 50-day and 100-day MAs—evident in the recent rally—suggests accelerating momentum, but a flattening of the 50-day MA could signal weakening upward thrust.

MACD & KDJ Indicators

The MACD histogram has shown a narrowing contraction, indicating waning momentum in the recent rally. The MACD line (12-day EMA minus 26-day EMA) is positive but trending sideways, while the signal line (9-day EMA of MACD) remains below it, suggesting a potential bearish crossover. The KDJ stochastic oscillator, with %K at 75 and %D at 68, indicates overbought territory, but the %K line has not yet crossed below %D, delaying a sell signal. This confluence of overbought conditions and MACD divergence implies caution, as the stock may face a near-term pullback despite the recent bullish candlestick pattern.

Bollinger Bands

Volatility has expanded in recent sessions, with the stock trading near the upper Bollinger Band ($144.33). The 20-day SMA is at $140.20, and the bands have widened following the October 8 rally, reflecting increased uncertainty. A break above the upper band could signal a continuation of the uptrend, but a reversion to the 20-day SMA may trigger profit-taking. The band contraction observed in mid-September (narrowing between $131.20 and $134.64) preceded the recent breakout, suggesting the current expansion may lead to a directional move.

Volume-Price Relationship

Trading volume has surged on the recent up days, with October 8’s volume at 3.24 million shares, a 25% increase from the prior day. This volume surge supports the validity of the bullish engulfing pattern. However, the volume on October 6 (3.03 million) during a 2.45% decline was also elevated, indicating strong selling pressure. The recent volume profile shows a positive divergence, as volume on the rally days exceeds that on the decline days, suggesting institutional accumulation. A sustained volume contraction during an upmove may signal weakening conviction, while a breakout above $144.33 with expanding volume would confirm bullish momentum.

Relative Strength Index (RSI)

The 14-day RSI stands at 62, within the neutral zone, but the recent two-day rally has pushed it toward overbought territory (70 threshold). While the RSI has not yet breached overbought levels, the rapid ascent suggests a potential correction. A close above 70 would trigger a cautionary signal, but a retest of the 50-level (around $136.50) may occur before a resumption of the uptrend. The RSI’s alignment with the MACD divergence further reinforces the likelihood of a near-term pullback.

Fibonacci Retracement

Key Fibonacci levels between the recent low of $131.20 (September 23) and high of $144.33 (October 8) include 23.6% at $139.50, 38.2% at $140.30, and 61.8% at $141.50. The stock’s current price of $142.76 has already retested the 61.8% level, suggesting a potential continuation of the uptrend if it holds above $141.50. A breakdown below $140.30 may target the 38.2% level, aligning with the 50-day MA. The 61.8% retracement acts as a critical psychological barrier; a close above it could validate a deeper bullish bias.

Backtest Hypothesis

The MACD Golden Cross strategy, applied to NASDAQ stocks from 2022 to 2025, yielded a 32.26% return versus the benchmark’s 38.12%, with an underperforming Sharpe Ratio of 0.36. This suggests the strategy’s 10-day holding period is insufficient to capture longer-term trends, particularly in volatile sectors like tech. For Constellation Brands, the recent rally aligns with the MACD Golden Cross, but the strategy’s historical underperformance and overbought RSI conditions imply a higher risk of a near-term pullback. Investors may need to extend the holding period or combine MACD with Fibonacci retracement levels to improve success rates.