ACBFF Stock: Patience Is Warranted
Marijuana stocks are in the spotlight because marijuana legalization in Canada is drawing near. Legalization in Canada will allow recreational use of cannabis, just like with alcohol.
This is causing speculation to run rampant with regards to the billions of dollars that this sector can pull in.
This speculation was responsible for the incredible move toward higher prices that the entire marijuana sector experienced late last year. Unfortunately, that move has run its course, and the sector peaked in late January. A correction has gripped this sector ever since.
Stock prices may have cooled, but enthusiasm toward the marijuana sector has not.
A popular name in this sector is Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB), and for good reason.
In 2017, ACBFF stock posted a 343.6% return, making investors very happy in the process.
I am focusing on Aurora Cannabis stock now because I believe that the current correction will end, and that the next move toward higher stock prices will commence when a number of technical indications suggest so.
The first indication I am focusing on is a very influential momentum indicator that is highlighted on the following ACBFF stock chart.
Chart courtesy of StockCharts.com
The influential momentum indicator highlighted on the above Aurora Cannabis stock chart is the moving average convergence/divergence (MACD) indicator.
MACD is a trend-following momentum indicator that uses the crossing of a signal line to determine whether bullish or bearish momentum is influencing the price action in a stock.
Bullish momentum implies that a stock is likely to advance, while bearish momentum implies that a stock is likely to decline.
Momentum is a very influential force because a stock cannot sustain an advance or a decline unless the applicable level of momentum is supporting it.
For instance, in July 2017, a bullish MACD cross was generated, and it was the precursor to a move toward higher ACBFF stock prices. The stock price advanced by 547.4% before it finally peaked in late January.
In February 2018, a bearish MACD cross was generated, suggesting that Aurora Cannabis stock was likely to decline. The stock has been in a correction ever since.
As a result, I will be looking for a bullish MACD cross to suggest that the current correction is over and that higher prices are on the horizon.
The next indications I am watching are highlighted on the following ACBFF stock chart.
Chart courtesy of StockCharts.com
One indication I am watching on this Aurora Cannabis stock chart is a technical price pattern known as a descending triangle.
A descending triangle is characterized by a sequence of lower highs and lower lows. It sounds like I am describing a bearish trend, which is partially true, but where this pattern differs is that the sequence of lower highs and lower lows are connected by two converging trend lines.
These converging trend lines represent respective levels of price support and price resistance.
As the pattern develops, the range between support and resistance begin to contract. This contraction of space causes energy to build within the pattern as traders position themselves on either the side of support or resistance in anticipation of a resolution of this pattern.
A break above resistance will imply that higher prices are likely to prevail, while a break below support will imply that lower prices are likely to prevail.
I believe that the descending triangle is likely to be resolved in a bullish manner by breaking above price resistance. That’s because the technical price pattern has been developing above the 200-day moving average.
The 200-day moving average acts as a dividing line that separates bullish stocks from bearish ones.
When a stock price is above the moving average, it is bullish; when a stock price is below that level, it is bearish. It’s just that simple.
As long as the Aurora stock price remains above the 200-day moving average, I will have to keep an open mind for the possibility that a bull market is still in development and that, once this correction ends, higher prices will prevail.
In order to be able to suggest that the current correction in Aurora Cannabis stock has run its course and that higher prices are likely to prevail, I will be watching the ACBFF stock chart. I will be waiting for a bullish MACD cross and a bullish resolution of a descending triangle.