Cannabis Stocks: A Correction in Canopy Growth Stock Is Likely

Canopy Growth Stock
credits:istock.com/NAN104

TWMJF Stock: Implications Are Widespread

Marijuana stocks as a whole posted exquisite performance numbers last year, and 2018 has started off on the right foot. The gains witnessed in this sector thus far have been parabolic in nature. While many investors are getting complacent, believing that much further gains are on the horizon, I have the inclination to believe that the entire sector is due for a correction.

I am focusing on Canopy Growth Corp (OTCMKTS: TWMJF), (TSE: WEED) stock because I have reason to believe that Canopy Growth stock is setting up to correct. The implications of such a correction are widespread, because TWMJF stock is a heavyweight by market cap, and is, therefore, a proxy for the entire sector.

My inclination that a correction is likely to occur is based on the indications that are in the process of being generated on the Canopy Growth stock chart. This method of analyzing stock charts is called technical analysis, and it is predicated on the notion that historical data can be used to forecast what the future may bring. I have spent the past two decades studying and applying this method, and I feel I am well equipped to analyze investments using their stock charts.

As a matter of fact, I have had great success applying technical analysis to the canopy growth chart, and the following publications are a testament to this notion.

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On October 5, 2017, when Canopy was trading at $9.37, I published a report titled “Technical Analysis: Canopy Growth Stock Is Leading the Cannabis Sector Higher,” in which I outlined the indications which were suggesting that a bull market was in development. A bull market is exactly what transpired.

On December 20, 2017, I published a similar report titled “Marijuana Stocks: Trend Toward Higher Canopy Growth Stock Prices Continues,” suggesting that the stock price was set to accelerate. In the days that followed that publication, TWMJF stock appreciated from $16.42 to a high of $35.88, tacking on 118.52%!

Perhaps these examples have proven that there is some merit to the method I employ to analyze investments.

The following stock chart illustrates the preliminary indications that a correction could grip TWMJF stock.

Canopy Growth Stock Price Chart

Chart courtesy of StockCharts.com

There are two indications on this stock chart that are warning of an impeding correction.

The first indication stems from the high volume bars that were registered late last year and early this year. These high volume bars are easily identified because the volume that was transacted on those days dwarfed the volume bars on the surrounding days.

These volume bars indicate that high volume was apparent on the days that Canopy growth stock was down. High volume on down days suggests that distribution is taking place. Distribution occurs when smart money investors exit their positions to unsuspecting retail investors.

The fact that this occurred on three separate occasions strongly suggests that a correction is likely. These implications are magnified by the fact the advancing days surrounding these bars are much smaller, suggesting that selling pressure is overwhelming buying pressure.

The second indication suggesting that there is an impending correction in TWMJF stock is stemming from the moving average convergence/divergence (MACD) indicator, highlighted in the lower panel of the stock chart.

MACD is a trend-following momentum indicator that is used to distinguish 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 bearish MACD cross suggested that a correction was in play, and that the stock acted appropriately by refraining from advancing. The signal lines that create this indication are currently converging, so a bearish MACD cross is likely in the days ahead. Such an indication would suggest that TWMJF stock is geared toward lower prices, increasing the odds that the stock price is going to correct.

Analyst Take:

I have an inclination to believe that a price correction is setting up to grip the marijuana stock sector. I am basing this view on the Canopy Growth stock chart, which I am using as a proxy for the entire sector. The indications on the TWMJF stock chart are suggesting that a correction is likely to occur in the coming days.