Diageo (DEO)

Posted by barkand on September 25, 2010 under Uncategorized | Be the First to Comment

Investors, as opposed to traders, should be interested in this weekly chart of Diageo (DEO). A long-term ascending triangle has formed, with the $70 mark providing the resistance. The stock is now testing this area for the third time in 2010. The first attempt resulted in a shooting star, and 6 weeks later the shares were under $60 (we’ll ignore the “flash crash” data point). During the summer, it tried and failed again, finding support at the lower trendline which was around $65 at the time. And now, here we are again.

This looks like a textbook chart pattern – especially if you consider the pattern to have begun in the spring with the first run to $70. Usually an ascending triangle should resolve itself within a few months. I extended the trendlines going backwards because they do seem to have some significance. You can see, also, that volume has dried up with each successive push toward the upper trendline.

So where does DEO go from here? It should break through $70 with a first price target in the low $80s (roughly the height of the pattern beginning with the first test of $70) with possibly a longer term target of reaching three figures based on the larger pattern. Of course, the markets do not always do what they “should” do. So a conservative approach on this one would be to wait for a couple weekly closes above $70 before jumping in.