Canopy Growth Corp: Awaiting a Bullish Pattern in CGC Stock

Canopy Stock
Photo: Drew Angerer / Staff / Getty Images

CGC Stock: Still Looking

Canopy Growth Corp (TSE:CGC, CVE:CGC) announced on December 1, 2016, that it would be acquiring a competitor in Mettrum Health Corp (CVE:MT) for an all-stock deal. Initially, both CGC stock and MT stock advanced on this news, with Mettrum stock enjoying a 38% gain to start the day.

But selling quickly ensued and, in the days ahead, almost the entire price premium paid to Mettrum shareholders was erased. The crazy swings and the volume-induced volatility that began late this year are set to continue. Canopy Growth Corp and other licensed marijuana producers have become a favorite among day traders who seek such volume and volatility.

I have said it many times and will say it again. A bull market in this sector will continue as long as the price chart remains constructive. In order for the price to remain constructive, a bullish tailwind needs to exist, in which hot money will continue to flow into this sector.

I believe that the “buy on rumor, sell on news” mantra is driving money into this sector as investors continue to speculate about the government’s policies regarding marijuana legalization. I believe that, once the government comes out with details regarding legalization, this will cause the speculative hot money to head for the exits. As a result, a “buy on rumor, sell on news” event is created.

I have mentioned numerous time in my previous publication on Canopy Growth stock that, even though volatility has increased, the price continues to act bullish, and this opens up the possibility that a constructive bullish pattern can develop.

The following Canopy Growth stock chart illustrates the latest examples of constructive price behavior.

canopy

Chart courtesy of StockCharts.com

Since the trend began to accelerate in October, the CGC stock price has been supported by an uptrend line. This uptrend line is created by connecting the troughs on on the price chart. There should be no mistaking an uptrend from a downtrend because the trend moves from the lower left to the upper right.

As long as CGC stock remains above this trend line, the bull market in Canopy growth stock is intact. In such situations, I would be looking for a bullish constructive pattern to set trading strategies against. One has not presented itself yet, but I am hopeful that one will.

A drop below this trend line would suggest that CGC stock is due for a larger correction. I have outlined in my previous report on Canopy Growth stock that a level of support lies at the previous all-time high around $4.00. If such an opportunity would present itself, I would hate to let it pass me by without acting upon it.

The top panel on the chart above is labeled “RSI,” and it stands for Relative Strength Index. This oscillator is a momentum indicator that is used to measure overbought and oversold conditions. When the oscillator is above 70, it suggests that the stock is overbought. When it is below 30, it suggests that the stock is oversold.

In a bull market, this oscillator can remain overbought, and it is common for the RSI indicator to remain above 50 when the price is trending higher. A drop below 50 on the RSI indicator would be suggesting that the current acceleration in Canopy Growth stock is due for a pause, and perhaps CGC stock will test the previous all-time high around $4.00.

Bottom Line on CGC Stock

Canopy Growth stock continues to be constructive, and levels of support and indicators continue to support a bullish trend. Due to volatility and the gains to date, I am still waiting upon a constructive pattern to trade against. Only then can I really be bullish on CGC stock.