ACB Stock: The Tide Has Turned, Lower Prices Likely to Prevail
I have been saying since early October that a defensive stance is the best course of action. And now we are seeing why, as the climate for stocks has gone from bad to worse very quickly.
December is on pace to be the worst December since the Great Depression, and almost no sectors have been sparred. Those that were performing the best are now performing the worst, which is why marijuana stocks have sold off as much as they have since the sector peaked on October 16.
The relentless selling pressure endured by pot stocks has done its share of technical damage to the sector. Many, if not all, marijuana stocks have generated some sort of signal suggesting that the predominant trend has changed course, leaving lower stock prices more likely.
Aurora Cannabis Inc (NYSE:ACB), one of the heavyweights in this sector, has also suffered as its peers have. It, too, has generated a number of indications that are suggesting that ACB stock is at risk of further losses.
For instance, a very influential momentum indicator has recently swung into bearish alignment, and its implications do not paint a rosy picture for the likes of ACB stock going forward.
This indicator can be seen on the following chart:
Chart courtesy of StockCharts.com
Highlighted above is the moving average convergence/divergence (MACD) indicator. This should be be very familiar to regular readers because I use it quite often.
The MACD is a momentum indicator that distinguishes whether bullish or bearish momentum is influencing the price action in a stock. Momentum drives a stock in a certain direction, and unless the applicable level of momentum is supporting the stock, a sustained and continuous move in that direction cannot occur. That’s is why it pays to know whether the MACD indicator is in bullish or bearish alignment.
For example, The entire time a bull market was raging in ACB stock, the MACD indicator was bullish, effectively capturing a gain of 3,941.94%.
I believe that Aurora stock is susceptible to further losses because in November, the MACD indicator swung into bearish alignment. This indicates that the path of least resistance became geared toward lower prices, which ultimately suggests that lower ACB stock pries are likely.
The significance of a signal generated by the MACD indicator is magnified depending on the time frame that is allotted to it. In this case, the chart above uses monthly data points and is therefore very influential.
This monthly bearish MACD signal is suggesting that a tide has shifted, making bearish pressures likely to influence the price action in Aurora stock for many months to come.
So now that I have outlined why I believe that ACB stock is likely to suffer further losses, I will go one step further and outline where I believe the stock may find price support.
If I am correct in my assessment, then I believe the trend line highlighted on the chart above is likely to be tested in the months ahead. From November 2016 to November 2017, this trend line was at a significant level of price resistance that prevented ACB stock from advancing beyond it.
When Aurora stock finally managed to break above this resistance level, it took off, with much higher stock prices following.
The thing about significant levels of price resistance is that they have a habit of acting as levels of price support. This is why I am eyeing this trend line; because ultimately, this is where I believe ACB stock is likely to find support.
At the moment, this metric resides at $2.00, suggesting that ACB stock can drop by another 60% before it finally finds its footing.
I am bearish on Aurora Cannabis Inc because an influential momentum indicator has swung into bearish alignment, suggesting that the tide has turned.
As a result, lower prices are now likely to prevail. I will maintain this bearish stance on ACB stock until there are indications suggesting otherwise.