This Is Where I Draw the Line on APHA Stock
Aphria Inc (NYSE:APHA) is a marijuana stock that continues to make headlines. In December 2018, a short seller’s report came out alleging that the company and its insiders had committed fraud. Investors obviously did not take kindly to this report and, as a result, APHA stock suffered substantial losses, leaving it battered and bruised.
The steep discount that Aphria stock was trading at as a result of this sell-off did not go unnoticed by its competitors. Later that same month, news broke that Green Growth Brands Inc (OTCMKTS:GGBXF, CNSX:GGB) was interested in taking over the company via a hostile takeover bid.
It was an all-stock offer worth roughly $8.00 a share. The reaction to this news was surprisingly muted because, although APHA stock did appreciate, it was nowhere near the $8.00 price point.
This stock is currently trading at roughly $6.92. This is off the lows that were set in December after the short seller’s report was released.
The current price is extremely significant because, from a technical perspective, Aphria stock is testing a significant level of price resistance. This resistance level is highlighted on the following stock chart.
Chart courtesy of StockCharts.com
The APHA chart above illustrates that a significant level of price resistance resides at $7.00.
Prior to being a level of price resistance, the $7.00 price point was a significant level of price support. For instance, in April and August 2018, Aphria shares found price support at this level and higher prices ended up prevailing each time.
In December 2018, following the short seller’s report, this level of price support was shattered. When a significant level of price support is broken, it becomes a new level of price resistance.
This level of price resistance has become a very important inflection point because, when Aphria stock broke below it, this event also completed a technical price pattern known as a double top.
A double top is a trend reversal pattern characterized by two peaks of roughly equal size that are separated by a trough in between.
The double top highlighted on the chart above illustrates that this trough resided at $7.00. When APHA stock broke below the trough in December, the pattern was completed, suggesting that the bullish trend that began in December 2014 had finally run its course. As a result, a bearish trend had taken its place.
In order to negate the bearish implications suggested by the double top, Aphria stock needs to break back above this level of price resistance.
The hostile takeover bid by Green Growth should have been the catalyst to accomplish this task. Unfortunately, the takeover bid fell well short. Perhaps this was an indication that investors were not taking the all-stock takeover bid as being serious.
Aphria stock is testing a significant level of price resistance that resides at $7.00.
In order to restore its bullish posturing, APHA stock needs to break above this level of price resistance and maintain its position above it. Failing to do so will continue to suggest that lower prices are likely to prevail.