Cannabis Stocks: Anticipating a Bounce in Canopy Growth Stock

Canopy Growth Stock
credits:istock.com/monsitj

TWMJF Stock: Support Is Fast Approaching

The high-flying marijuana stocks have quickly changed their tune and a correction has gripped this sector; the losses are substantial. These losses are being magnified by a sell-off that has also struck the general market indices.

One has to wonder, is this an opportunity in a bull market or is a larger correction going to grip this sector?

Answering this question outright is a difficult task, but I can provide some insight on what might happen next. My insights are based on a method of investment analysis called technical analysis. This method analyzes the merits of an investment based on the company’s stock chart.

The last time I focused on Canopy Growth Corp (OTCMKTS:TWMJF), (TSE:WEED) stock was on January 16, 2018 in a publication titled “Cannabis Stocks: A Correction in Canopy Growth Stock Is Likely.” In that publication, I outlined the indications suggesting that a correction was likely to occur and that such an event has obviously come to fruition. I am going to cover the indications that suggested such an outcome and what I believe is likely to happen next with TWMJF stock.

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The following Canopy Growth stock chart illustrates the indications implying that a correction was likely.

Canopy Growth Price Chart

Chart courtesy of StockCharts.com

There were two key and influential indications on this TWMJF stock chart that warned of an impending correction: volume and the moving average convergence/divergence (MACD) indicator.

Volume

Volume can be used as an indicator because it can be used to measure the magnitude of the selling pressure or buying pressure within a given day. In a bullish trend, buying pressure on up days should outstrip the volume recorded on down days.

Late last year, and early this year, there were three days where high volume was recorded, and all of them were on days when Canopy Growth stock was down on the day.

High volume on down days suggests that distribution is taking place. Distribution occurs when smart money investors exit their respective positions to unsuspecting retail investors who are chasing performance after a substantial move has run its course.

The fact that these distribution events occurred on three separate occasions strongly suggested that a correction was likely to take hold, and the sell-off that followed in Canopy Growth stock is a testament to using volume as an indicator.

MACD

MACD is a trend-following momentum indicator that is used to determine whether bullish or bearish momentum is influencing the price action in a stock. This indicator is very influential because a stock cannot make a sustained move in either direction without the applicable momentum being present.

In the development of its bullish trend, a bullish cross suggested that a move toward higher prices was in development while a bearish MACD cross suggested that a correction was in play.

On January 22, 2018, a bearish MACD cross was generated implying that bearish momentum was influencing the TWMJF stock price, creating a path of least resistance geared toward lower prices. From a bearish perspective, this indication did not disappoint because a significant sell-off quickly took hold.

Since January 10, 2018, Canopy Growth stock has fallen 45.93% from its highs, and the following TWMJF stock chart suggests that price support is fast approaching.

Canopy Growth Stock Chart

Chart courtesy of StockCharts.com

This TWMJF stock chart has been annotated using the Fibonacci retracement numbers.

Fibonacci retracement numbers are a very popular tool used by many technical traders, and it is a must in every trader’s toolbox. This tool is used to identify countertrend price objectives. In theory, when a stock pulls back from a primary trend, shares will retrace approximately 50%-62% of the primary move.

This 50%-62% retracement level has become so popular that a number of traders refer to it as “trading into the box.” This zone usually offers support as traders will be eyeing this area to enter long positions or cover existing short positions.

TWMJF stock has just entered the box and a reaction can be expected. The correction that has gripped Canopy Growth stock and the entire marijuana sector has created a volatile environment, and with volatility, opportunities are created. The velocity of the correction suggests that a bounce can be equally as violent.

Whether this bounce I am expecting manifests into something more substantial is something that will have to be revisited once this event I am anticipating occurs.

Analyst Take 

Canopy Growth stock is in the grips of a correction and it is approaching a significant level of price support where a bounce is expected. Whether this bounce manifests into something more will depend on the price action that follows. At the current juncture, I am neutral on TWMJF stock, awaiting a constructive price pattern that I can use to determine what will likely happen next.