ACBFF Stock: Looking for Support
Marijuana stocks have been given the cold shoulder, and much of the gains that were created late last year have been completely erased.
The sell-off that gripped this sector, including Aurora Cannabis Inc (OTCMKTS:ACBFF), (TSE:ACB) stock, was not a complete surprise, and I outlined it on January 12 in a publication titled “Marijuana Stocks: Aurora Cannabis Stock Is Correcting as Expected.” I explained that indications on the ACBFF stock chart were supporting the notion of lower prices.
The basis of my beliefs were a price objective that I carefully laid out on November 6, 2017 in a publication titled “Aurora Cannabis Breaks Out, Setting the Stage for a Move Toward $10,” in which I explained that the price action on the ACBFF stock chart was implying that a price objective between $10.00-$12.00 was plausible.
In early January, my objective was met, and my suspicions regarding a possible correction began to grow. Then a number of indications that were supporting this bullish advance failed to do so, and it resulted in the current sell-off.
The following Aurora Cannabis stock chart illustrates the indications that were supporting the bullish advance.
Chart courtesy of StockCharts.com
In November 2017, the ACBFF stock price began to accelerate toward higher prices.
This move toward higher prices is characterized by a sequence of higher highs and higher lows that, in essence, captures the concept of two steps forward and one step back.
This price action, which is the quintessential characteristic that defines all bullish trends, was effectively captured using an ascending channel.
An ascending channel is a technical price pattern that contains two upward-sloping parallel lines. These parallel trend lines were created by connecting the sequence of higher highs and higher lows, and they define respective levels of price support and price resistance.
The theory behind this price pattern is that the stock price will oscillate between these levels of price support and price resistance for as long as time will permit. As long as the stock price is contained within those levels, higher price will prevail.
Since early November 2017, Aurora Cannabis stock was oscillating between these two trend lines. On January 30, 2018, ACBFF stock fell below the lower trend line that represented support, suggesting that the bullish trend had concluded, a correction is in the cards, and lower prices are likely.
This notion of lower prices was reinforced by the moving average convergence/divergence (MACD) indicator.
MACD is a trend-following momentum indicator that distinguishes whether bullish or bearish momentum is influencing the price action in a stock. This information is pertinent because bullish momentum creates a path of least resistance toward higher prices, while bearish momentum creates a path of least resistance toward lower prices.
The bearish MACD cross coincided with the breakdown below support, confirming the notion that a correction was in play. The events that followed have substantiated these signals.
A sell-off has gripped Aurora Cannabis stock, and the technical tool highlighted on the following ACBFF stock outlines where significant support can be found.
Chart courtesy of StockCharts.com
The technical tool annotated on the Aurora Cannabis stock chart is the Fibonacci retracement numbers.
The Fibonacci retracement numbers are a technical tool used by traders to identify where price support and price resistance can be found. The most popular numbers eyed by traders are the 50% and 62% retracement levels. Depending on the trading strategy, traders will use these levels to enter or exit their respective trades.
The theory surrounding these numbers is that, after a stock completes its primary move, it will correct by approximately 50–62% before resuming its primary trend. These retracement numbers have gained so much popularity that traders refer to it as trading into the box.
The box currently resides in between the price points of $6.00 and $7.20, and Aurora Cannabis stock has just entered that box, meaning that more than half of the gains since late October have been erased. I fully expect a reaction to occur off this level, as some traders cover existing short positions while other traders establish entirely new long positions.
Whether the bullish trend resumes from this level remains to be seen. I would like to see the development of a price pattern which will help dictate whether higher or lower ACBFF stock prices are likely to prevail.
The correction that was anticipated in Aurora Cannabis stock has finally taken hold, and a substation sell-off has ensued. I now anticipate that support outlined by the Fibonacci retracement numbers is where ACBFF stock is likely to find its footing and bounce.