CGC Stock: Rodeo Show
The wild ride in Canopy Growth Corp (TSE:CGC) continues, and it is starting to get gut-wrenching. If there was ever a literal meaning of bull market, this is it. The volatility in price is acting like a bull trying to throw an investor off its back. From the outside looking in, it is quite amusing. But for the investor, this is turning into quite an emotional roller coaster ride.
The driving force behind all this speculation is the legalization of cannabis, and the billions of potential dollars the recreational market will produce. This is the “buy on rumor, sell on news” mantra that I have mentioned numerous times in my previous reports.
There is some chatter that the government may delay legislation. If there is merit to this, the devastating news could send the marijuana sector crashing down. For now, it would be best to simply take note and not act until this rumor is substantiated or confirmed by a government official.
In last my last report, I highlighted that in order for price to remain constructive, Canopy Growth stock would need to find price support around a specific price point. The next morning, CGC stock opened lower, and on the support level I outlined. CGC stock proceeded to close the day at $10.44, up 26.5%. Even though support was found where it was supposed to, the constructive pattern I seek has yet to develop.
The following CGC chart illustrates the price action that followed my last report.
Chart courtesy of StockCharts.com
The CGC stock chart above illustrates that the Fibonacci 61.8% retracement level supported price as it quickly reversed the selling pressure when it was hit. This was the level of support I highlighted in my previous report that needed to hold. If this level holds, the probability that a constructive pattern develops increases.
Fibonacci retracement numbers (highlighted in green) are a very popular tool used by many technical traders. This tool is used to identify countertrend price objectives. In theory, when a stock pulls back from a primary trend, shares will retrace approx 50%-62% of the primary move. This zone usually offers support, as traders will be eyeing this area as an area to enter long positions, or cover short positions.
The blue box is what traders refer to as trading into the box. When shares fall into the box, it signals traders to cover their short positions and start building a long position. Canopy Growth stock conformed to the box perfectly. Using this technique to purchase shares proved to be a winning strategy. A long position would have generated a paper profit of 26.4%, if I assume an average cost of $8.50, based on the midpoint of this range.
It is imperative that the price low that was visited on Wednesday holds. Failing to hold would mean that a lower low was created and this would effectively put a damper on a constructive pattern developing. Taking out that low would also suggest that lower prices are in store, as an intermediate downtrend has developed.
The following Canopy Growth stock chart illustrates the level of support I will be eyeing if further selling pressure ensues.
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 I would target to try and grab a bargain. I can not say for sure if this price level will ever be hit, but what I can say for sure is that I would love to participate in buying at this price if that opportunity ever presents itself.
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Bottom Line on CGC Stock
That elusive constructive pattern in CGC stock has yet to develop, but the price action remains constructive, and a constitutive pattern in Canopy Growth stock can still develop. If further selling pressure does ensue, I know the price I will be eyeing to take a nibble if that opportunity presents itself.