APHA Stock: The Tide Has Turned, and So Has the Trend
Aphria Inc (NYSE:APHA) has found itself in very bad predicament, which could spell serious trouble. Allegations have surfaced that Aphria and its insiders have committed fraud.
These are serious allegations and, obviously, investors have not taken kindly to them. They pounded Aphria stock with selling pressure, sending its price spiraling down. APHA stock finally found its footing only after it suffered a 52.5% loss in less than three trading days.
Not only has Aphria’s reputation been tarnished, but the recent bout of selling pressure has caused its share of technical damage to the company’s stock chart. In the midst of the selling panic, a technical price pattern was completed.
This completed price pattern is now suggesting that the bullish trend that was so kind as to enrich investors for almost three years has finally come to an abrupt end. As a result, the door has swung wide open for a bearish trend to take its place.
The pattern that has tarnished the outlook for Aphria stock is captured on the following chart.
Chart courtesy of StockCharts.com
The completed pattern captured on the APHA stock chart above is known as a double top.
A double top is a trend reversal pattern that contains two peaks that are roughly of equal size, and which are separated by a trough in between.
The trough in this pattern was responsible for creating a significant level of price support, which resided at $7.00. This price point acted as floor for much of 2018. It finally gave way on December 3 after allegations broke that Aphria and its insiders were involved in fraudulent activities.
This break below price support completed the double top, suggesting that a significant top has been in place. Double tops are referred to as trend reversal patterns, and its completion is suggesting that a new trend toward lower prices has just begun.
After rebounding off the lows that were set on December 6, Aphria stock is now sitting below price support, testing it from beneath. Returning to test a previous level of price support after it has been broken is called a backtest.
This price action serves to reaffirm that the original break below price support was legitimate, while simultaneously establishing this price point as new level of price resistance.
It also gives anyone who has been caught in the trade a last-ditch opportunity to exit.
The reason it’s a last-ditch opportunity is because backtests have a tendency to act like springboards. Once they are completed, the stock price tends to accelerate in the direction of the new trend that has just been established, which in this case is toward lower prices.
These bearish implications can be negated, however. In order to do so, APHA stock needs to regain its footing above $7.00. The longer the price remains below this point, the odds of it negating the implications suggested by the double top continue to dwindle.
I am bearish on Aphria stock because it has completed a technical price pattern that is suggesting that the predominant trend has reversed. As result, lower APHA stock prices are likely to prevail.