Aphria Stock Is Leading the Marijuana Stock Pack

APH StockAPH Stock: Setting Up to Move

Marijuana stocks are still popular among investors and it is easy to see the logic behind their enthusiasm. Marijuana is on its way to becoming a staple in the North American economy. Marijuana legalization is now in the process of becoming a realty, and although the framework has not yet been provided, the legalization date of July 2018 has been provided. (Source: “Liberals to announce marijuana will be legal by July 1, 2018,” CBC News, March 27, 2017.)

Many companies are set to prosper under this new segment of the economy, and I believe that a licensed producer of marijuana, Aphria Inc (TSE:APH), is set flourish under such conditions. I believe that the previous performance of APH stock is only a precursor to what is to come, and further gains are likely for Aphria stock.

From a fundamental standpoint, Aphria stock is a standout because it is already a profitable company, and that characteristic is a rarity among its peers. Currently, licensed producers are dependent on sales to medical marijuana patients. This segment is small and it is growing, but it has meant that many licensed producers have been operating in the red, losing money in the hopes of gaining new patients. These are the growing pains, and being profitable under such conditions illustrates the merits and skills of Aphria’s management. As a result, APH stock has outperformed its peers.

I have been, and still am, under the impression that speculation continues to drive hot money into this sector. This speculation is driven around the notion that recreational marijuana will grow into a multi-billion dollar industry. I am not disputing this notion, but company valuations in this segment may have gotten ahead of themselves. This potentially creates a “buy on rumor, sell on news” event that will play out when the framework behind legalization is finally announced. At that point, I can expect the hot money that has been fueling these to names to head for the exits, and a sell-off to ensue.

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For anyone who has not read any of my previous publications, understand that even though I do respect fundamental analysis, I prefer technical analysis. This method has provided much in terms of success when I applied it to timely investment strategies. Technical analysis is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. The price chart has become my tool of choice and the indications that are generated using this tool override any beliefs that I may be carrying.

As a result, even though I believe that the “buy on rumor, sell on news” mantra is driving these investment, I continue to take cues from the signals and indicators generated on the price chart, one that is constructive and is in the process of generating signals that serve to suggest that higher APH stock prices are on the horizon.

The following price chart illustrates the predominant trend and indicators that have been supporting the advance in Aphria stock.

aphria stock chart

Chart courtesy of StockCharts.com

The price chart above is the quintessential definition of a bullish trend: a trend that begins in the lower left of the price chart and ends at the upper right of the price chart. This bullish trend is easily defined using a simple uptrend line. This uptrend line is created just as easily by connecting the valleys on the price chart.

This uptrend line began to develop in early July of last year, and every time APH shares have corrected lower to test this trend line line, buyers have stepped in to support it. There have been numerous attempts to trade below this trend line but all them have been thwarted. This trend line carries much importance; it is now the dividing line between being bullish on APH shares and being bearish. As long as APH shares are trading above this uptrend line, I can only assume that bullish tailwinds are still propelling this investment.

The moving average converge/divergence (MACD) indicator in the lower panel has been instrumental in identifying when an advance was set to occur. MACD is a simple, yet effective trend-following momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum.

In November 2016, January 2017, and February 2017, whenever a bullish cross was generated, a bullish advance quickly ensued. This signal suggests that bullish momentum is now propelling APH stock, and as a result, the path of least resistance is geared towards higher prices.

A bullish cross is now on the verge of being generated, and upon completion, it will indicate that another advance is set to take place.

In order for this potential advance to commence, Aphria stock will need to get above a key level of resistance that is highlighted on the price chart below.

APH stock price

Chart courtesy of StockCharts.com

This price chart illustrates that Aphria’s shares are currently testing a key level of resistance. This resistance is outlined using a downtrend line. A successful breakout above this trend line will suggest that higher prices are set to prevail and the target of $7.50 that I pointed out in my previous publication, “Marijuana Stocks: Aphria Stock Is on the Verge of a Breakout,” will be fulfilled.

Aphria stock’s performance continues to impress, and the price action below resistance has consisted of higher highs and higher lows. It is difficult to assume anything other than a bullish view on this investment at this juncture.

Bottom Line on Aphria Stock

I am bullish on Aphria stock because the indications and the price action on the APH stock chart continue to suggest that the path of least resistance is geared towards higher prices. New indications are now on the verge of being generated that will reinforce the bullish view. I will remain bullish on Aphria shares until there are indications on the APH price chart that suggest another view is warranted on this marijuana stock.