APHQF Stock: A Break Above Resistance at $16.00 Will Set the Wheels in Motion
Marijuana is legal in Canada. This event has now come and gone, and I have to say, the way this sector performed on the first day of legalization caught me a bit off guard.
I expected the market to sell off, because that’s what stocks tend to do when much-anticipated news is finally released. What I didn’t expect to see is the sector bounce right back after an initial sell-off, and then close nearly flat on the day.
This was an exceptional show of strength, illustrating that this sector is resilient as well as possibly still poised for further gains.
In light of this bounce back, I am focusing on Aphria Inc (OTCMKTS:APHQF, TSE:APH). This stock’s price action is quite constructive; a technical price pattern has emerged that will dictate what the stock does next.
The technical price pattern I am referring to is captured below:
Chart courtesy of StockCharts.com
This pattern, a symmetrical triangle, was created when APHQF stock set a high of $16.86 on September 12 and a subsequent low of $12.12 on September 14. From then on, the price action has been oscillating between these two numbers, making a series of lower highs and higher lows.
Connecting the peaks and troughs created by this action captures this pattern, with the trend lines on the chart above pinpointing significant levels of support and resistance. This is important information because the next sustained directional move in Aphria stock will be determined based on its ability to break out of this pattern.
Breaking upward above price resistance implies that higher prices are likely to follow, while breaking downward below price support suggests that lower prices are likely to follow.
In order to get a better gauge of what is likely to follow, it’s best to take a step back and look at the price action on a longer time frame. Triangle patterns are, by nature, consolidation patterns, which means the price action digests the move that preceded it.
The following Aphria stock chart combines the symmetrical triangle and the price action that preceded it:
Chart courtesy of StockCharts.com
The chart above captures the price action since mid-August, when APHQF stock began staging an advance.
This price action has been subdivided into an impulse wave (green) and a consolidation wave (purple). Longtime readers should be familiar with these: in a bullish trend, impulse waves capture the point when stocks make a sustained move toward higher prices, while consolidation waves do the same for when the stock price corrects.
Corrective price action digests the move that preceded it, creating the necessary conditions for an impulse wave to follow.
The creation of these waves has coincided with the signals generated by the moving average convergence/divergence (MACD) indicator, which differentiates between bullish and bearish momentum.
In order for a stock to sustain an advance, bullish momentum is needed. In order to sustain a decline, bearish momentum is needed. Without the applicable level of momentum, a sustained directional move is unlikely to occur. This is why the impulse wave has coincided with a bullish MACD signal and the consolidation wave has done likewise with a bearish one.
The MACD indicator has just generated a signal suggesting that bullish momentum is once again influencing the price action in APHQF stock. This signal supports the idea that the consolidation wave is approaching completion, with the development of an impulse wave likely to follow.
Such a scenario will only be confirmed once the stock breaks above price resistance, which currently resides at $16.00. Given the current market conditions, it is wise to wait until after all the necessary signals are generated before assuming an outcome is likely to occur.
I am watching the development of a technical price pattern because I believe that it will determine which direction Aphria stock is likely to go next.
Indications are supporting an advance, but in order to confirm this outcome, APHQF stock needs to break above the current $16.00 resistance.