Aphria Inc: Making Heads or Tails of APH Stock

Aphria Inc
Drew Angerer / Staff / Getty Images

APH Stock: Speculation Runs Rampant

The bonanza and intrigue behind the marijuana producers continues, and the volatility has reached mind-numbing levels. Aphria Inc (CVE:APH) was the first producer to report positive cash flows as well as constrictive quarters of positive earnings. This is no small feat for a company that is only allowed to sell its product to medical marijuana patients.

Imagine the possibilities that recreational marijuana can do to the bottom line of a company that is already running in an efficient profitable manner. Under this premise, the profit potential for APH stock is stratospheric.

It is this type of mindset that is setting this marijuana stock, and others like it, ablaze. Aphria stock has run from $0.68 to $7.79 in less than two years, and it now raises the question: have these companies run too far, too fast? The hype and media coverage surrounding this sector make this outlook all the more likely, but this metric is difficult to measure. The APH stock chart can help shed some light on the situation.

The run higher in APH stock has been very constructive, and it pays to be attentive to the signals and the patterns on the price chart that have set up this impressive run.

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The following Aphria stock chart illustrates the constructive price behavior that lays the groundwork on the bull market.

aph

Chart courtesy of StockCharts.com

The trend in Aphria stock was already exhibiting that bullish buying pressure was entering the sector because resistance is illustrated using an upward-sloping trend line, while support is illustrated using a curved line.

This is not a trend I come across quite often, where resistance is a straight line, meaning that selling comes in at an orderly level, but buying pressure is mounting as investors continue to step in at exponentially higher levels.

Curved lines are used to chart parabolic runs, which end in blow-offs as the price and valuation reach an extreme and climactic event similar to the one this sector experienced on Wednesday of last week.

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In July, the price broke above the trend line that acted as resistance, and that initiated the beginning of the massive run in APH stock.

The following Aphria stock chart illustrates the developments that followed.

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Chart courtesy of StockCharts.com

It was in August that this bull market really began to move. The price continued to act in an extremely bullish manner. The progression of the trend is a perfect example of healthy bullish price action as higher highs and higher lows encompass the trend.

In early October, APH stock hit $4.00 and a violent reaction ensued as the price sold off violently. This trading day defined trading for the next five weeks as the price stayed confined within a consolidation range. The price of $4.00 proved to be a major level of resistance over that time frame.

On November 10, resistance was finally overcome and the momentum that was stored within the consolidation was finally released. Five days later, Aphria stock hit $8.00 in a fever-pitched trading session. This type of price action is suggesting that some sort of a top has been put in. It is still difficult to say if this event marked a long-term peak, so it is best to wait for a constructive pattern to trade against.

Trades will be eyeing the $4.00 mark, as this previous level of resistance should now be a new level of support.

Bottom Line on Aphria Stock

Marijuana legalization has yet to be concluded, as the government has yet to come out with legislation dictating how the recreational market will work. This leaves a lot of speculation that could fuel further moves in Aphria stock. I strongly believe that it’s best to wait for constructive patterns before pursuing a risky investment in APH stock.