Aphria Inc: New Highs in APH Stock Are Still Possible

APH Stock
Photo: Drew Angerer/Getty Images

APH Stock: The Bucking Bull

The wild ride in Aphria Inc (CVE:APH) stock and other marijuana producers continues. This volatility is too much for me to handle, and I do not even own any shares, so I can only speculate how actual shareholders are faring. I know that the major brokerage firms have been overwhelmed with the volatility and, as a result, they have suspended stop-loss orders.

Most investors don’t like this type of volatility, and many bail under such conditions, but that doesn’t mean that all is lost for APH stock. APH stock closed the trading day up 21.76% after it managed to find price support. It was the level at which APH stock found price support that the possibility remains that the bull market in Aphria stock is still intact.

The reason there is so much buzz surrounding this sector is that the government is set to legalize marijuana, and these new laws will set the stage for a multi-billion-dollar industry. Licensed producers are set to thrive in such an environment, as they are seen as the primary beneficiaries of the recreational market.

The “buy the rumor, sell the news” mantra means that a bullish tailwind will exist up until the government comes out with the details surrounding this new segment of the economy. When this tailwind dissipates, perhaps this speculative madness will finally die out.

I stated in my previous report on Aphria Inc that this investment is very constructive with regards to the setup patterns that emerge on the price chart. I believe it would be wise to wait for such a pattern to develop before initiating a position.

A constructive pattern has yet to develop but, in order for a pattern to develop, support needs to be found, and this level of price support needs to be constructive within the overall picture. Failing to hold this level of support will have ominous consequences, suggesting that a larger top was put in on Wednesday November 16, 2016.

The good news is that APH stock found support at the exact point at which it should have been found, and bounced off it in dramatic fashion. It does not mean that a new trend higher has developed, but it is the first requirement in order for a constructive price pattern to develop.

The following Aphria stock chart illustrates the bounce that occurred off support.


Chart courtesy of StockCharts.com

The Aphria stock chart is constructive in every respect. As the rally began to accelerate in early August, the trend remained extremely healthy, as higher highs and higher lows encompassed the price chart.

The rise was very orderly until a minor peak was created in early October, when the price sold off violently after APH stock hit $4.00 for the first time. This reaction in price set the stage for what was to come.

Aphria stock spent the next 5 weeks trading within a range. This range is highlighted in green on the chart above and is labeled as a consolidation wave. This consolidation wave was completed when the price finally broke above the $4.00 level that was acting as resistance.

The break above this resistance set off a dramatic run in Aphria stock where, in five trading days, the stock doubled. The fifth day saw tremendous volatility and a spike in volume. This price action suggested that a temporary top in APH stock was created, and the sell-off that followed was no surprise.

In order for this bullish run to remain intact, Aphria stock needed to find support at the previous level that stood as resistance. Falling below this level would have put the entire bull market in jeopardy. The price acted accordingly, and a massive bounce ensued off of this level of resistance, which is now a level of support.

Bottom Line on Aphria Stock

The bounce in Aphria stock leaves the door open for a constructive pattern to develop. If this pattern develops, then the bull market run in APH stock is still intact.