Awaiting This Signal to Confirm the Next Leg Up in Canopy Growth Stock

CGC Stock
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CGC Stock: In Order to Confirm That an Advance Is Underway, I Require This Signal

Marijuana stocks continue to be the hot topic around the water cooler, as investors are eyeing legalization in Canada as the next catalyst that will drive this sector higher.

In most cases, I believe that market catalysts such as this one will act as a selling event. That is because catalysts that are public knowledge act as prime examples of “buying on rumor and selling on news.” This is an old saying, and it has proven its merits time and time again.

We just witnessed one of these events with respect to Canopy Growth Corp (NYSE:CGC, TSE:WEED) stock, as it rose in the run-up to its listing on the New York Stock Exchange (NYSE).

The day that Canopy Growth stock started trading on the NYSE, it sold off. This was a perfect example of buying on rumor and selling on news.

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Legalization is looming in the months ahead, suggesting that this sector will likely go higher in the run-up to that event.

I am focusing on this stock because I believe it is currently the leader of the pack, and how it performs will weigh heavily on the sector.

There are already a number of indications suggesting that this move higher ahead of legalization has already begun, which is great news.

But in order to confirm that this move toward higher prices is currently in development, I am waiting for a very influential indicator.

Let’s begin with the indication suggesting that the move toward higher CGC stock prices has already begun.

This indication is a completed technical price pattern, which is highlighted on the following Canopy Growth stock chart.

Chart courtesy of StockCharts.com

This WEED stock chart illustrates that, for much of this year, a technical price pattern known as a symmetrical triangle has been in development.

This price pattern develops when the price action is characterized by a sequence containing a series of lower highs and higher lows.

Identifying this pattern was achieved by connecting the peaks and troughs that were created by the price action. This process resulted in the creation of two converging trend lines.

These trend lines act as significant levels of price support and price resistance, and only when the stock price breaks above or below these trend lines will the pattern be complete.

I am particularity fond of triangles because they are known for their explosive breakouts.

The power generated by this pattern is created by the convergence of space between price support and price resistance. This convergence of space causes energy to build within the pattern, which will only be released when the pattern is complete.

On May 14, Canopy Growth stock broke above the trend line that represented resistance, which completed the pattern. This event suggested that an explosive move toward higher CGC stock prices is expected to follow.

True to its nature, WEED stock appreciated to the tune of 21.84% in a matter of days, and it wasn’t until CGC stock started trading on the NYSE that a correction ensued.

This completed pattern was the first indication suggesting that a move toward higher prices has begun. In order to confirm this notion, I require a bullish moving average convergence/divergence (MACD) signal.

The MACD indicator and the wave structure responsible for creating a bullish trend in Canopy Growth stock are both highlighted on the following WEED stock chart.

Chart courtesy of StockCharts.com

The momentum indicator I am waiting for is the MACD indicator located in the lower panel of the chart.

MACD is an indicator that uses the crossing of a signal-line in order to determine whether bullish or bearish momentum is influencing the price action in a stock.

Bullish momentum implies that a stock is geared toward higher prices, while bearish momentum implies that a stock is geared toward lower prices.

A stock cannot sustain a move in either direction unless the applicable level of momentum is supporting it.

A bullish MACD signal will confirm that the next wave in the wave structure highlighted above is in development.

This wave structure, which is responsible for creating and sustaining a bullish trend, consists of impulse waves and consolidation waves.

The waves highlighted in green are impulse waves, and they define the period in a bullish trend when a stock stages a sustained move toward higher prices.

The wave highlighted in purple is a consolidation wave, and it defines the stage in a bullish trend when a stock corrects and refrains from advancing.

The symmetrical triangle doubles as a consolidation wave, and its completion implies that an impulse wave is now in development. This will only be confirmed when a bullish MACD signal is generated.

The signal lines that create a MACD signal are currently converging, and, as long as the WEED stock price does not sell off dramatically in the days ahead, a bullish MACD cross is likely to be generated.

Once this signal is created, I will have the necessary indications to suggest and confirm that Canopy Growth stock is making its next move toward higher CGC stock prices.

Analyst Take

There are indications beginning to surface that Canopy Growth stock has begun its next move toward higher prices.

In order to confirm this, I require a bullish MACD signal. As long as WEED stock does not sell off dramatically in the coming days, that required signal will likely be generated.