Canopy Growth Corp: This Chart Is Bad News for CGC Stock

Canopy-StockCGC Stock: Bearish Headwinds

There is never a dull moment when it come to the mania surrounding Canopy Growth Corp (TSE:CGC, CVE:CGC) stock and the licensed marijuana producers. A number of developments have just occurred and it has me believing that lower prices are possibly just ahead. These lowers prices could still be within the confines of a larger bull market, because it is believed that the bullish tailwind created from cannabis legalization is still fueling this market.

At the same time, I am beginning to hear stories that are quite concerning. These stories suggest that the late stages of this speculative run were driven by retail investors hoping to get rich quick. These stories have included people boasting that they made so much money that they are thinking of buying a second home, and stories of investors who have used their credit cards as a source of liquidity to play this lucrative sector. When my friends start telling me about certain stocks, I know that main street has now boarded this speculative bubble and a top is near. Such instances usually end in tears as the late entrants get punished.

Perhaps these late entrants will flee, and CGC stock will fall into the $4.00 range that I only believed would be possible in my wildest dreams. Irrespective of my dreams, I have always stated that the best course of action is to wait for a constructive pattern to develop.

The premise on which this bullish run was predicated is still in play, but lower prices are now expected in the interim.

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The following Canopy Growth stock chart illustrates the bearish developments that are suggesting lower prices.

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Chart courtesy of StockCharts.com

There are two key indications on the CGC stock chart above that are suggesting that lower prices could be in the cards.

The first indication comes in the form of a broken uptrend line. This uptrend line is created by connecting the troughs on the price chart. There should be no mistaking an uptrend from a downtrend because the uptrend line moves from the lower left to the upper right.

I stated previously that as long as CGC stock remained above this trend line and price remained constructive, a bullish pattern could develop, and the best course of action would be to wait for such a pattern. A constructive pattern did not develop and price fell below this trend line, which is now deemed broken. Lower CGC stock prices can now be expected.

The second indication comes from the top panel on the chart above, labeled “RSI.” This indicator is an oscillator that is used to measure overbought and oversold conditions.

In a bull market, this oscillator can remain overbought, and it is common for the RSI indicator to oscillate above 50 when the price is trending higher. The current drop below 50 is suggesting that the price advance has concluded and that weaker prices can be expected before price can once again find its footing.

The following Canopy Growth stock chart illustrates where price can once again find its footing.

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Chart courtesy of StockCharts.com

The Canopy Growth stock chart above illustrates a level of support that marks the previous all-time high in CGC stock. If the sell-off in Canopy Growth stock does gain steam, this is the price point that I believe Canopy Growth stock could regain its footing. I cannot say for sure if this price level will ever be hit, but what I can say for sure is that I would love to be a participant if such an opportunity ever did present itself.

Bottom Line on CGC Stock

I have always reiterated that it was best to wait for a constructive pattern to develop before entering a position in CGC stock. Such a pattern failed to manifest, and instead, the bullish pillars that held up this name have begun to fall. As a result, in the interim, I am expecting lower prices on Canopy Growth stock.