Aleafia Stock Is Poised for a Move Toward Higher Prices
Marijuana stocks remain a hot topic among retail investors, and for good reason. We have been witnessing the birth of the recreational marijuana market, and marijuana stocks provide an excellent opportunity to participate in this new segment of the economy.
Although very lucrative, investing in this sector has not been easy, as many investors can attest. Cannabis stocks have a tendency to go on astonishing bullish runs that are followed by scary sell-offs.
This type of price action is a result of emotions running high as both greed and fear grip this sector.
Ever since marijuana was legalized in Canada on October 17, 2018, marijuana stocks have been caught in the grips of a sell-off. As a result, the majority of stocks in this sector are substantially off their highs.
Since the new year began, I have been scouring this sector, looking for stocks that are poised to make gains. I believe that Aleafia Health Inc (OTCMKTS:ALEAF, CVE:ALEF) stock may be one of them.
The reason I believe that Aleafia stock is poised to make a move toward higher prices is that it has just finished testing coinciding levels of price support, followed by a break above a downtrend line.
Coinciding Levels of Price Support
The coinciding levels of price support are captured on the following ALEF stock chart.
Chart courtesy of Stockcharts.com
There are currently two coinciding metrics highlighted on the Aleafia stock chart above that are suggesting that a significant level of price support resides at $1.30.
This first metric is a horizontal trend line that, at one time, defined a level of price resistance. This price point was first established as a level of resistance in November 2016, shortly after the stock’s inception. From that point forward, it acted as a significant level of price resistance, thwarting all attempts at moving beyond it.
This level of price resistance finally met its demise on September 11, 2018. Without anything left to contain ALEF stock from advancing, the stock went on a torrid run toward higher prices.
Eleven trading days after this break above resistance, the stock ended up tacking on almost 231% in gains, as greed fully took over.
Ever since peaking at $4.70 on September 26, 2018, the Aleafia stock price has been trending lower.
There is a rule in technical analysis that states that when a significant level of price resistance is broken, it becomes a new level of price support. That is how $1.30 became a significant level of price support.
It just so happens that when this level of price support was being tested, it coincided with the 200-day moving average. The 200-day moving average is a metric that acts as a dividing line that determines the stature of a stock.
When a stock is trading above the 200-day moving average, it suggests that the stock is in a bullish state and that one should expect higher prices to follow.
When a stock is trading below the 200-day moving average, it suggests that the stock is in a bearish state and that one should expect lower prices to follow.
The 200-day moving average carries so much influence that it often acts like a level of price support in bull markets and a level of price resistance in bear markets.
Both these metrics were tested simultaneously. As a result of this successful test, Aleafia stock has maintained its bullish posturing, and higher stock prices have prevailed.
The Downtrend Line
On January 10, 2019, ALEF stock surged by 15.5%. In the process, it broke above a significant level of price resistance, outlined by a downtrend line.
The downtrend line is captured on the following stock chart.
Chart courtesy of Stockcharts.com
The chart above illustrates the price action that Aleafia stock sustained after it peaked at $4.79 on September 26, 2018.
The price action was characterized by a series of lower lows and lower highs, which is a quintessential characteristic of a bearish trend.
By connecting the series of lower highs, I created a downtrend line. This downtrend line defines the bearish trend by pinpointing where significant levels of price resistance reside on the ALEF stock chart.
Using the downtrend line as a tool is quite simple, because, as long as the stock price is trading below the downtrend line, we can assume that a bearish trend is in development and that lower prices are coming.
In order to negate the bearish implications suggested by the downtrend line, the stock price needs to close above that line.
This is exactly what occurred on January 10, when—as mentioned earlier—Aleafia stock surged by 15.5%. This event, highlighted as a breakout on the chart above, captured the point in time when the stock broke above the downtrend line.
This event is now suggesting that the bearish trend in development since September 26 has finally run its course and that, as a result, an opportunity has been created for a bullish trend to take its place.
This development, coupled with the successful tests of price support, is why I currently believe that ALEF stock is poised to make a move higher in price.
In light of the recent technical developments that have occurred on the Aleafia stock chart, I am initiating a bullish view on this stock. That’s because I believe these developments are suggesting that ALEF stock is now poised to make a move toward higher prices.