CGC Stock Surges on Well-Timed News, But Is It Enough?

canopy growth stock analysis
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CGC Stock: A Substantial Move, But the Signals I Require Have Yet to Be Generated

The marijuana stock sector has just been shocked by exciting news. Constellation Brands, Inc. (NYSE:STZ) increased its ownership stake in Canopy Growth Corp (NYSE:CGC) stock to 38% by purchasing 104.5 million shares CA$48.60 per share, which translates into a roughly US$4.0-billion investment.

The price it paid was significantly higher than the stock price was trading at prior to this news release, which is why the CGC stock price reacted so bullishly. This exciting news caused Canopy Growth stock to gap higher by 32.5% to start the day, taking the entire marijuana sector up with it.

This news release was well timed because CGC stock was testing important levels of prices support and the stock price was in danger of breaking below them.

These levels of price support are highlighted on the following Canopy Growth stock chart.

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Chart courtesy of StockCharts.com

The levels of price support I am referring to were created by an ascending triangle and the 200-day moving average.

An ascending triangle is a technical price pattern that develops when the price action is characterized by a static high and a series of higher lows.

Connecting the peaks and troughs produced by this price action has resulted in the creation of two converging trend lines.

These trend lines not only capture the price pattern, but also pinpoint where price support and resistance reside. This is very important information because when CGC stock breaks above price resistance or falls below price support, it will complete the pattern. Then, the stock price is expected to continue trending in that direction.

Canopy Growth stock was testing price resistance just before the exciting news was released. The news caused CGC stock to trade back into the middle of the pattern, continuing its development.

The timing of this news was impeccable because CGC stock was in danger of breaking below support. This would have completed the technical price pattern and suggested that lower prices are likely to prevail.

This level of price support is starting to converge with the 200-day moving average.

The 200-day moving average acts as a dividing line that separates stocks trading in a bullish state from stocks trading in a bearish state.

When the stock price is above the 200-day moving average, it is bullish. When the stock price is below the moving average, it is bearish. It is that simple.

That is why it is imperative that Canopy Growth stock continues to trade above it—as long as it continues to do so, a bullish resolution of the ascending triangle is still in the cards.

The gap off support has reaffirmed the stock’s bullish posturing, which keeps the wave structure highlighted on the following CGC stock chart tilted toward a bullish outcome.

Chart courtesy of StockCharts.com

This CGC stock chart captures a wave structure and an influential momentum indicator that create and sustain bullish trends.

The wave structure is made up of impulse waves and consolidation waves.

The impulse wave is highlighted in green on the above chart. It captures the period in the development of a bullish trend when a stock makes a sustained move toward higher prices.

The consolidation wave is highlighted in purple. It captures the period in the development of a bullish trend when a stock corrects and refrains from advancing.

The ascending triangle currently in development doubles as a consolidation wave. Its completion will imply that an impulse wave is in development.

In order to suggest that a sustained move toward higher Canopy Growth stock prices is in development, the consolidation wave needs to be resolved in a bullish manner. This indication needs to be accompanied by a bullish signal from the percentage price oscillator (PPO) indicator.

PPO is an influential momentum indicator used to determine whether bullish or bearish momentum is influencing the price action in a stock.

Momentum is a very powerful force, which is why a sustained move in either direction has been accompanied by the applicable PPO signal. While impulse waves have been accompanied by a bullish PPO signal, consolidation waves have been accompanied by a bearish PPO signal.

The bump in price has pushed the Canopy Growth stock price back within the median of the consolidation wave. It has also caused the PPO signal lines to converge.

This is a positive development, but both signals need to be generated in order to even suggest that a sustained move toward higher CGC stock prices is in development. Otherwise, the corrective price action that began in January 2018 is still in development and further patience is warranted.

Analyst Take

The Canopy Growth stock price surged on the news that Constellation Brands was increasing its stake in the company. On a technical basis, this surge in price did nothing to change the company’s outlook. As a result, I am still waiting for the required signals to suggest that CGC stock is ready to sustain a move toward higher prices.