APH Stock: Waiting Patiently for Bullish Signals
The marijuana sector was a standout last year, as the entire sector made an extraordinary move toward higher prices. This was fueled by investors heading into this sector in droves as marijuana legalization in Canada drew nearer, marking the birth of the recreational marijuana market.
The wild jump toward higher prices that this sector experienced last year coincided with the broad-based move in market indices.
So, when the markets peaked in January 2018, marijuana stocks did too, and this sector has been in the grips of a correction ever since.
I am on the lookout for technical indications that will suggest that this correction has run its course and that, perhaps, another rise in prices will follow.
Aphria Inc (OTCMKTS:APHQF, TSE:APH) was one of the standout high-flying marijuana stocks last year, returning 232.7% to investors. This year has been quite different; the correction in this sector has resulted in APH stock shedding 44.4% of its value for the year.
I believe that, if Aphria stock is going to regain its footing and head toward higher stock prices, a number of technical indicators will signal when such a move is set to begin.
The first technical indicator I am currently watching is highlighted on the following stock chart.
Chart courtesy of StockCharts.com
This Aphria stock chart highlights a bearish trend that began on January 9, 2018, after APH stock peaked at $24.75. This bearish trend has been characterized by a progressing move toward lower prices, consisting of a sequence containing lower highs and lower lows.
If you have read my works before, you would know that lower lows and lower highs are the quintessential characteristics that define all bearish trends.
Capturing this bearish trend was accomplished by using a downtrend line. This downtrend was created by connecting the sequence of lower highs that characterize a bearish trend.
This downtrend line acts as a significant level of price resistance. It currently has five points of contact, which makes it significant. These points of contact have prevented Aphria’s stock price from moving beyond it.
As long as APH stock is trading below this downtrend line, I can only assume that lower prices will prevail.
In order to negate the bearish assumption created by the downtrend line, Aphria stock needs to break above it. Such an event will imply that the correction that began in January 2018 has finally run its course, opening up the door for an opportunity to transition into a bullish trend.
This bullish trend will be characterized by a series of higher highs and higher lows. A bullish trend such as this one cannot develop unless the indicator highlighted on the following chart generates a bullish signal first.
Chart courtesy of StockCharts.com
The indicator highlighted on the APH stock chart is the moving average convergence/divergence (MACD) indicator.
MACD is a simple momentum indicator. It uses the crossing of a signal line in order to determine if bullish or bearish momentum is influencing the price action in a stock.
Bullish momentum implies that a stock is likely to advance because bullish investors are in control, while bearish momentum implies that a stock is likely to decline because bearish investors are in control. This is very important information because a sustained move cannot occur unless the appropriate camp is supporting it.
Prior to a massive climb toward higher Aphria stock prices that began in the fall of last year, a bullish MACD signal was already generated, implying that the path of least resistance was toward higher prices.
In turn, a bearish MACD signal was generated in February 2018, and lower prices have since prevailed.
I can only assume that, as long as this MACD signal remains in bearish alignment, lower APH stock prices will continue.
In order to negate this bearish assumption, the stock needs to generate a bullish MACD cross, which would imply that higher prices are likely to prevail.
I am watching a number of technical indications on the Aphria stock chart because I believe that they will signal when APH stock is likely to appreciate.
These signals consist of a break above a downtrend line and a bullish MACD cross.