Marijuana Stocks: Aphria Stock Is on the Verge of a Breakout

APH StockAPH Stock: Speculation Is Back

There is still quite a lot of speculation surrounding marijuana stocks, and for good reason. The investment world is still waiting for the government to announce the details surrounding the recreational marijuana market.

These details are expected to help boost the bottom line of licensed marijuana producers like Aphria Inc (CVE:APH). The speculation surrounding these expectations are directly responsible for the appreciation in APH stock over the past year.

I have made my views quite clear regarding the speculation that is driving marijuana stocks. I am a firm believer that this is a classic “buy on rumor, sell on news” event. The rumor is the speculation with regards to the legalization of marijuana and the prospects of a recreational market, and the news is the actual announcement from the government outlining the details surrounding this new segment of the economy.

As long as we are in the rumor phase of this equation, the bull market in marijuana stocks is set to continue, driven by speculation. Once the news is announced, I expect selling to sweep the sector, as much of the speculation will exit the market.

After a brief lull to start the new year, speculation is once again beginning to surface, and it is driving marijuana stocks up once again. This speculation has put Aphria stock in such a position that a bullish breakout is only moments away. This bullish breakout is based on the price action that has developed on the APH stock chart.

The following Aphria stock chart illustrates a number of indicators that continue to suggest that speculation will drive the APH stock price higher.

aphha

Chart courtesy of StockCharts.com

There are three distinct indicators on the chart above that continue to support the notion of higher stock prices.

The first indicator in the top panel of the chart labelled “RSI” stands for relative strength indicator. This oscillator is used to measure overbought and oversold conditions. When this oscillator is above 70, it suggests that the stock is overbought. When it is below 30, it suggests that the stock is oversold. In bull markets, it is a common occurrence for the RSI indicator to remain above 50 when the price is trending higher. The current reading at 63 suggests that APH stock can continue to appreciate before it reaches an overbought level.

The second indicator is the upward-sloping trend line labelled “uptrend.” The uptrend line, highlighted in blue, is created by connecting the valleys on the Aphria stock chart.

An uptrend is defined by the price action of higher highs and higher lows, which creates a trend that moves from the lower left to the upper right of this stock chart. As long as APH stock remains above this trend line, I can only presume that the bull market in the stock is intact, and that higher prices should be expected.

The third indicator on the lower panel of the chart, labelled “MACD,” stands for moving average convergence/divergence. MACD is an effective trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish momentum signals.

The bullish cross that has just been generated suggests that bullish momentum is now driving Aphria stock and, as a result, the path of least resistance is toward higher prices.

The following APH stock chart illustrates the technical pattern that is only moments away from completion.

aphha12

Chart courtesy of StockCharts.com

The stock is currently testing a level of resistance that has contained the price for nearly three months. The last three attempts to get beyond this level of resistance were refuted. The previous chart is suggesting that higher APH stock prices are likely, and this notion serves to suggest that this level of resistance is now set to be broken.

Breaking above resistance at $5.75 would be a constructive endeavor because, not only would it suggest that the price of Aphria stock is set to rise, it will also provide a price objective. This price objective is obtained by taking the length with the trading range that is defined by support and resistance, and projecting this value above resistance at $5.75. This technique produces a potential target on APH stock at $7.50.

Bottom Line on Aphria Stock

After a brief pause, speculation is once again swirling around APH stock and similar marijuana stocks. All the indications on the stock chart support the notion that higher prices are a likely outcome. This increases the odds that resistance will be broken and a rally will ensue.