The Same Indications Imply That a Correction Is in Play for ACBFF Stock
Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB) stock and the entire marijuana sector are posting performance numbers that are getting quite a bit of attention from retail investors.
When retail investors are clamoring to enter the sector and the talk of the town is marijuana stocks, I start to get a bit anxious that perhaps the run in the marijuana stock sector is getting long in the tooth, and perhaps a correction is around the corner.
My level of anxiety is being compounded by the fact that many of the price moves in the sector have become parabolic in nature, and parabolic moves are unsustainable. I believe that, when this move toward higher prices has run its course, a painful and substantial correction will follow.
Timing a correction is very difficult, so I am going to outline the technical indicators that I am currently watching on the Aurora Cannabis stock chart that I believe will confirm the notion that a correction in ACBFF stock is underway. The caveat is that, until one of these indications is generated, I can only assume that the parabolic move toward higher prices is still in development.
The first indication I am watching is highlighted on the following stock chart.
Chart courtesy of StockCharts.com
This stock chart focuses on the bullish trend in Aurora Cannabis stock that began to accelerate in November 2017.
This bullish trend contains the quintessential characteristic that defines all bullish trends, which is a sequence consisting of higher highs and higher lows. Capturing this bullish trend is easily accomplished using two upward-sloping parallel lines.
The pattern that these trend lines create is an ascending channel, and these trend lines define respective levels of price support and price resistance.
The ACBFF 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 this pattern, the bull market in Aurora Cannabis stock is intact and, therefore, higher stock prices will prevail.
Aurora Cannabis is on the verge of creating a new high and, as a result, I can assume that the resistance outlined by this ascending channel is going to be tested.
On the other hand, if Aurora Cannabis stock falls below support outlined by the ascending channel, I will have reason to believe that the correction has begun and that lower prices are likely to follow.
The remainder of the indications I am watching are highlighted on the following ACBFF stock chart.
Chart courtesy of StockCharts.com
The technical indicators highlighted on the ACBFF stock chart are the relative strength indicator (RSI) and the moving average convergence/divergence (MACD).
Relative Strength Indicator
RSI is an oscillator that measures overbought and oversold conditions. A reading above 70 is overbought, and a reading below 30 is oversold.
Contrary to popular belief, once a stock becomes overbought, it does not mean the stock price is setting up to correct. In most cases, the stock price goes from being overbought to more overbought, and this is where many stocks make exponential moves toward higher prices.
The RSI indicator on the stock chart illustrates that Aurora Cannabis stock has been overbought since the beginning of November, and the stock price has appreciated from $2.52 to $11.65 since then. Maintaining an overbought condition is called an embedded signal and, as long as the RSI indicator remains above 70, higher prices will prevail.
On the other hand, when the RSI oscillator closes below 70 for two consecutive days, I will have reason to believe that the run toward higher prices has run its course and that a correction is likely to follow.
Moving Average Convergence/Divergence
MACD is a momentum indicator that uses the crossing of a signal line in order to distinguish whether bullish or bearish momentum is influencing the trading action in a stock. Bullish momentum influences a stock toward higher prices, while bearish momentum influences a stock toward lower prices.
A MACD bullish cross was generated in late October and, since then, the stock price has accelerated higher in a parabolic fashion. As long as this indicator remains in bullish alignment, I can only assume that higher ACBFF stock prices are likely to prevail.
On the other hand, given the significance of this indicator, when the day comes that a bearish cross is created, I will have all the indications I need to safely assume that a correction has begun and that lower prices are likely to prevail.
Given the nature of the indications I have highlighted, once one of them swings into bearish alignment, I will have the propensity to believe that a correction is likely. When two of them swing into bearish alignment, I will have confirmation that a correction is playing out.
My fears that a correction is imminent in ACBFF stock may or may not be warranted. So, in order to qualm my fears and emotions, I have chosen a number of indications on the Aurora Cannabis stock chart that I believe will signal when a correction is occurring.