This Signal Will Act as the “Tell” for the Next Advance in CGC Stock

Canopy-Growth-Corp-Stock-Advance
iStock.com/Anton Ostapenko

With CGC Stock, Momentum Is a Powerful Force to Be Reckoned With

I use technical analysis to determine whether a stock is worth investing in. This method of investment analysis uses historical data to forecast what the future may bring.

This method of investment analysis has many facets, tools, and indicators that can be used as a looking glass into the future. I want to focus on one in particular: the moving average convergence/divergence (MACD).

MACD is a technical indicator used to determine whether bullish or bearish momentum is influencing the price action in a stock.

Momentum is a very powerful force to be reckoned with. Bullish momentum helps push a stock toward higher prices and bearish momentum helps push a stock toward lower prices. This is also the same reason why stocks have a tendency to trend over time.

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In order to conceptualize how momentum and the MACD indicator work, I am focusing on the popular marijuana producer Canopy Growth Corp (NYSE:CGC).

Momentum and the MACD indicator work on many timescales.

To begin with, here is a Canopy Growth stock chart using a monthly scale:

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Chart courtesy of StockCharts.com

This CGC stock chart illustrates that ever since the stock bottomed in August 2015 at $1.01, a bullish trend has been in development.

Bullish trends describe a progressive move toward higher prices. These progressive moves are characterized by price action that consists of a series of higher highs and higher lows.

On a stock chart, this quintessential characteristic creates what looks like stair-steps that move the stock price from the lower left corner of the chart to the upper right corner.

This bullish trend has been responsible for taking Canopy Growth stock from a low of $1.01 to where it currently resides at $49.42, representing a mouth-watering 4,793.1% return in a little over three years.

As you can see on the chart above, the entire time this bullish trend has been in development, the MACD indicator has remained in bullish alignment. This indicates that bullish momentum was responsible for sustaining the trend toward higher prices.

The sheer fact that the MACD indicator remains in bullish alignment suggests that the bull market is still in development.

Even though this bull market looks like a straight line toward higher prices, it has had its share of corrections. These corrections are captured on the following CGC stock chart using a weekly scale.

Chart courtesy of StockCharts.com

This chart illustrates that, although the MACD indicator has remained in bullish alignment on a monthly scale, the same cannot be said using a weekly scale.

Instead, the weekly MACD indicator has been an excellent indication as to when the stock was in an advancing phase of this bull market, versus when it has been in a corrective phase of this bull market.

This MACD indicator is not perfect, however. The weekly indicator has not been spot on in calling tops or bottoms, but it has done an excellent job in capturing the stage of the bullish trend that CGC stock has been trading in.

In August, the weekly MACD indicator swung into bullish alignment. As a result, the stock went on to make a new all-time high.

Taking the MACD indicator one step further, I have provided a Canopy Growth stock chart using a daily scale.

Chart courtesy of StockCharts.com

The above chart captures the CGC stock trading action since late July. It shows that a move toward higher prices began shortly after a bullish MACD signal was generated on August 1.

Only after a bearish MACD signal was generated in September did a correction finally take hold, stopping the advance dead in its tracks.

To recap, the brunt of the gains that occurred in August happened when the MACD signals in all three time frames—monthly, weekly, and daily—were in bullish alignment.

What this means, for timing purposes, is that, as long as the monthly and weekly MACD signals stay in bullish alignment, the next daily bullish MACD signal will indicate when the stock is destined to make another move toward a new all-time high.

Analyst Take

Canopy Growth stock is a prime example of a stock that adheres to the signals generated by the MACD indicator.

At the moment, one of the three time frames I have outlined is in bearish alignment. If CGC stock is destined to make another move toward higher prices, the daily MACD indicator will signal when such a move has begun.