Diageo shows all warning signals of an upcoming correction.

The group’s poor Surperformance ratings express the weaknesses of its fundamentals. Thomson Reuters analysts have regularly revised downward both Revenue and EPS estimations for the coming years. Thus, Sales are expected to decrease of 6% this year. Moreover, the financial situation seems compromised with a high amount of debt leading to an expected 2014 leverage of 2.19. Finally, the company seems overvalued when taking into account the EV/Revenue of 5.01x 2014 estimates.

Graphically, the stock is in a long term downtrend and is coming back to an already tested support line. Considering weak fundamentals, the breakout of this support level will be a sell signal as a correction phase should begin.

Therefore, a short position could be taken after breaking out the GBp 1768. The target will then be GBp 1620 (computed by swing effect). A stop loss will be placed over the entry points in case of a technical rebound.