Technical Analysis: Canopy Growth Stock Is Leading the Cannabis Sector Higher

Canopy Growth Stock
iStock.com/OlegMalyshev

TWMJF Stock: A Bull Market in Development

Speculative hot money is once again returning to the marijuana sector, which is great news if you are bullish on this sector. I am focusing on Canopy Growth Corp (OTCMKTS:TWMJF, TSE:WEED) because I have the inclination to believe that higher Canopy Growth stock prices are on the horizon. This inclination is based on three key indications that have been generated on the TWMJF stock chart.

I have highlighted these indications in the past and, following the blow-off that occurred in this sector late last year, I stipulated that I was waiting for these indications to signal that the bull market in Canopy stock has resumed.

The following Canopy Growth stock chart illustrates two of these indications.

Canopy Growth stock chart

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Chart courtesy of StockCharts.com

The first indication is the downtrend line, which is highlighted in blue.

The downtrend line is created by connecting the peaks on the TWMJF stock chart, and it serves to define the bearish trend that gripped Canopy Growth stock following the speculative blow-off that occurred in November 2016.

The trend towards lower stock prices contained the quintessential characteristic that defines all bearish trends, which is series of lower lows and lower highs.

In July, TWMJF stock crossed above this downtrend line, and this event is highlighted on the stock chart as a breakout. The breakout serves to indicate that the bearish trend that contained the price from advancing is finally broken and, therefore, higher stock prices can prevail.

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The second indication is the moving average convergence/divergence (MACD) indicator located in the lower panel.

MACD is a trend-following momentum indicator that distinguishes between bullish and bearish momentum using the crossing of a signal line. In order to stage an advance or decline, the applicable bullish or bearish momentum is required.

In February, a bearish MACD cross was generated, and it served to suggest that bearish momentum was influencing the Canopy Growth stock price, which created a path of least resistance geared towards lower stock prices. This bearish indication proved its merits because, while this indication was engaged, TWMJF stock went on to lose 41.25% of its market value before a bottom was finally forged.

A bullish MACD cross was generated in July, and it is serving to suggest that bullish momentum is now influencing the trading action in Canopy Growth stock, which is creating a path of least resistance towards higher stock prices. This indication had proven fruitful, as TWMJF has appreciated quite smartly after a bullish MACD cross was generated.

These two coinciding signals were generated in July and, normally, these indications would be enough to suggest that a new bull market is in development. I refrained from suggesting this because I was waiting for one more indication in order to confirm the notion that a new bull market was indeed in development.

The following Canopy Growth stock chart illustrates the third and final confirming indication that I was waiting on.

TWMJF price charts

Chart courtesy of StockCharts.com

The last confirming indication was the 200-day moving average.

The 200-day moving average is created by averaging the stock’s closing price over the preceding 200 days and plotting that value on the stock chart. This moving average acts like a gauge that separates bullish investments from bearish ones. An investment trading above the 200-day moving average is a bullish indication, while one trading below it is a bearish indication.

In October 2015, TWMJF stock broke above the 200-day moving average, and this marked the beginning of an epic move towards much higher stock prices. In the following 13 months, Canopy Growth stock appreciated to the tune of 810.76%.

This investment was above the 200-day moving average until May of this year, following the announcement regarding the framework for recreational marijuana use. So, even though a bullish MACD cross was generated and the downtrend was broken, the stock price was still trading below this moving average, which is a bearish indication.

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In September, Canopy shares finally mustered up enough strength to break above the 200-day moving average. This was the confirming indication I needed to suggest that a new bull market is now in development.

Analyst Take: 

A number of indications have been generated on the Canopy Growth stock chart, which confirms the notion that a bull market is once again in development. I will continue to believe that a bull market is in development for as long as these indications on the TWMJF stock chart remain in bullish alignment.