Cannabis Stock: Anticipating Further Gains in CannaRoyalty Stock

Cannaroyalty-Corp-Stock
iStock.com/Linda Hall

CNNRF Stock Just Passed the Halfway Point

A landmark event is set go into effect on October 17, when recreational marijuana becomes legal in Canada.

Investors have been anticipating this event for many years now, and their enthusiasm for the cannabis industry has been responsible for the bull market that has been flourishing in this sector.

This bull market has been broad-based, with anything marijuana-related being caught in the rising tide. This has been delightful for the investors who have profited handsomely in this sector.

Not all marijuana stocks are created equal. One day, when the rising tide subsides, the distinctions between the companies that are strong and those that aren’t will become increasingly apparent.

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I am particularly fond of CannaRoyalty Corp (OTCMKTS:CNNRF, CNSX:CRZ) stock because its bullish trend is quite exquisite in its simplicity.

The bullish trend that’s currently in development is extremely easy to identify. This is excellent news, because determining the direction that a stock is trending in is exactly what we look for when using technical analysis to determine the merits of an investment.

The following CannaRoyalty stock chart, using a monthly scale, captures the bullish trend that has been developing.

Chart courtesy of StockCharts.com

This chart illustrates that ever since CNNRF stock bottomed at $1.15 in May 2017, the stock price has been appreciating within a well-defined bullish trend.

The bullish trend has been so pristine and precise that a simple trend line has been used to capture it. If you’re wondering, this uptrend line was created  by simply connecting the lows that have occurred since the stock bottomed in May 2017.

Using this uptrend line is just as simple as it was to create, and as long as the stock price is trading north of this uptrend line, the only assumption that can be made is that a bull market is still in development, meaning a gradual prevalence of higher stock prices.

At the moment, price support outlined by this metric resides at $3.70, suggesting that CannaRoyalty stock can correct by about 32.4% and still be within the confines of a well-defined bullish trend.

I am currently looking past the prospects of a possible correction. That’s because the price action this year has been very constructive and it continues to support the notion that higher stock prices are in development.

This constructive price action has been responsible for creating a technical price pattern, as seen below:

Chart courtesy of StockCharts.com

The above chart illustrates that, thus far in 2018, an ascending triangle has been developing.

For those who aren’t familiar with the term, ascending triangles are technical price patterns created when the price action experiences a series of higher lows that are accompanied by a consistent static high.

Applying trend lines to the respective peaks and troughs created by the price action captures this pattern, while the trend lines outline the parameters. The information provided by this is of the utmost importance because the next sustained move in CNNRF stock is dependent on its ability to exit this price pattern.

As you can see from the chart above, the stock exited the ascending triangle on August 27 in an upward direction. This event, highlighted as a breakout on the chart above, correctly suggested that the next sustained move was up.

After a brief rise, CannaRoyalty stock returned to test the parameters of the ascending triangle. This is a backtest, which serves as a great timing tool because backtests tend to act like launchpads.

The successful backtest on September 14 initiated an accelerated move toward higher prices and, in a matter of days, the stock was trading higher by 30%. This move, initiated by the completed ascending triangle, has been very respectable.

I believe that the implications suggested by this completed pattern (namely higher stock prices) are still in development. The reason why is that triangle price patterns are also continuation patterns.

This means that this pattern has a tendency to act as midpoint in a trend. If we assume that the completed ascending triangle is a midpoint, it implies that the next leg toward higher prices only began in August.

Analyst Take

I am bullish about the prospects of CNNRF stock going forward.

My beliefs are centered around the bullish trend that began in May 2017, as well as the indications that continue to suggest that this trend is still in development.