WEED Stock: Waiting and Watching, Because Patience Is Warranted
Marijuana legalization is set to occur in Canada by the end of summer 2018, and with it will come the framework for a recreation cannabis market. Speculation has arisen that this new segment of the economy will generate billions of dollars, creating many new jobs in the process.
Said speculation has been responsible for fueling the incredible move that the marijuana stock sector experienced in 2017. For example, Canopy Growth Corp (OTCMKTS:TWMJF, TSE:WEED) stock appreciated by 225.38% in 2017. This move came to an abrupt end in January 2018, and WEED stock, along with its peers, has been in the grips of a correction ever since.
The question many are wondering is, when will this correction end?
I believe that this correction will end when a number of technical indications begin to suggest that Canopy Growth stock is likely to appreciate.
The first such indication I am watching for is the development of a technical price pattern, which is highlighted on the following Canopy Growth stock chart:
Chart courtesy of StockCharts.com
The technical price pattern on this chart is a symmetrical triangle. These develop when the price action is characterized by a sequence containing a series of lower highs and higher lows. Defining this pattern is as simple as connecting the respective level of higher lows and lower highs.
This process creates two converging trend lines that represent significant levels of price support and resistance. The pattern will be resolved when either the stock price breaks above resistance or falls below support.
Triangles are known for their strong breakout patterns, and therefore a resolution of this pattern is expected to produce a powerful result. The converging nature between price support and price resistance causes “energy” to build on either side of support and resistance as traders position themselves for a possible resolution. The longer this pattern is in development, the bigger the reaction that can be expected once it concludes.
I am leaning toward a bullish resolution of the symmetrical triangle because WEED stock continues to trade above its 200-day moving average. This average acts like dividing line that separates bullish stocks from bearish ones. Based on this, as long as Canopy Growth stock is trading above this metric, I can only assume that a bull market is still in development.
A bullish resolution of the symmetrical triangle will likely coincide with a bullish signal generated by the momentum indicator highlighted on the following Canopy Growth stock chart:
Chart courtesy of StockCharts.com
The momentum indicator highlighted on this WEED stock chart is located in the lower panel is the moving average convergence/divergence (MACD) indicator, which effectively uses the crossing of a signal line in order to determine whether bullish or bearish momentum is influencing the price action in a stock.
Bullish momentum implies that a stock is likely to appreciate, while bearish momentum implies that a stock is likely to depreciate. A stock cannot sustain a move in either direction unless the applicable level of momentum supports it. This is why the waves highlighted on the Canopy Growth stock chart have a tendency to coincide with this indicator.
The wave highlighted in green is an impulse wave and defines the period in a bullish trend where a stock stages a sustained move toward higher prices. This wave has a tendency to coincide with a bullish MACD cross, which in this case effectively suggests that the WEED stock price is likely to advance.
The wave highlighted in purple is a consolidation wave, and it defines the stage in a bullish trend where the stock corrects and refrains from advancing. This wave has coincided with a bearish MACD cross, effectively suggesting that WEED stock is likely to decline. The waves work together in order to create and sustain a trend.
The symmetrical triangle is a consolidation wave within this wave structure, and a break above resistance will imply that an impulse wave is in development. This event will likely coincide with a bullish MACD cross, strongly suggesting that WEED stock is likely to appreciate.
I have my eyes on Canopy Growth Corp because I am waiting upon a bullish resolution of a symmetrical triangle and a bullish MACD cross. I believe these signals will indicate when WEED stock is likely to commence its next advance.