Will This Be the Catalyst That Sparks a Rally for CRON Stock?
News broke last week that Constellation Brands, Inc. (NYSE:STZ) increased its ownership stake in Canopy Growth Corp (NYSE:CGC) stock, sending shock waves through the marijuana stock sector.
Let’s not forget that late last year, Constellation Brands announced its initial stake in Canopy Growth stock. That announcement ended up being a catalyst for a frenzy in marijuana stocks, driving prices substantially higher.
Constellation’s more recent announcement doesn’t feel any different. The end result could be similar, so it should not be the least bit surprising if the recent news ends up being a catalyst for the next sector-wide advance.
With that in mind, I am now focusing on Cronos Group Inc (NASDAQ:CRON) because I believe it is poised to outperform if a sector-wide move develops.
My beliefs are based on a powerful technical price pattern that is currently in development on the CRON stock chart. A bullish resolution of this pattern will imply that much higher prices are likely to follow.
This technical price pattern is captured on the following Cronos stock chart.
Chart courtesy of StockCharts.com
The technical price pattern captured on the above chart is a symmetrical triangle. Symmetrical triangles are created when the price action is characterized by a series of lower highs and higher lows.
I captured this pattern by connecting the peaks and troughs that were created by the price action that characterized this pattern. The end result is two converging trend lines that depict a triangle.
These trend lines are very significant because they pinpoint where significant levels of price support and resistance reside.
Knowing where these levels reside is important because, in order to resolve the pattern that is in development, Cronos stock needs to either break above price resistance or below support. At that point, the stock would be expected to continue moving in the same direction.
CRON stock is currently testing price resistance at $7.50, and a sustained close above resistance would unleash a powerful move toward higher prices.
The reason is that triangle price patterns are known for their powerful breakouts. The convergence between price support and price resistance, as the pattern develops, causes energy to build within the pattern. Once the pattern is resolved, the stored energy is released and a powerful move follows.
A sustained close above resistance will suggest that higher prices are likely to follow. In order to confirm this suggestion, the breakout needs to be accompanied by a bullish signal from the momentum indicator, which is captured on the following chart.
Chart courtesy of StockCharts.com
The momentum indicator I am referring to is the moving average convergence/divergence (MACD), which is captured in the lower panel of the above Cronos stock chart.
MACD is an influential momentum indicator that uses the crossing of a signal line to determine whether bullish or bearish momentum is influencing the price action.
Bullish momentum implies that a stock is geared toward higher prices. Bearish momentum implies the opposite.
Momentum is a very powerful force, which is why a stock cannot sustain a move in either direction unless the applicable level of momentum is supporting it. This is why the wave structure highlighted on the above CRON stock chart has coincided with the signals generated by the MACD indicator.
This wave structure consists of impulse waves and consolidation waves that are responsible for creating and sustaining a trend.
The wave highlighted in green on the above chart is an impulse wave. Impulse waves capture the stage in a bullish trend when a stock sustains a progressive move toward higher prices. This is why, in a bullish trend, impulse waves are accompanied by a bullish MACD signal.
The wave highlighted in purple is a consolidation wave. Consolidation waves capture the stage in a bullish trend when the price of a stock corrects and refrains from advancing. This is why, in a bullish trend, consolidation waves are accompanied by a bearish MACD signal.
The symmetrical triangle doubles as a consolidation wave. The completion of this wave will suggest that an advancing impulse wave will follow. This impulse wave will need to be accompanied by a bullish MACD signal.
The signal lines responsible for creating a signal are currently in bearish alignment. This confirms what we already know, that a consolidation wave is in development.
The good news is that these signal lines are converging, which suggests that, if the stock can break above resistance completing the symmetrical triangle, a bullish cross will likely follow. These indications will confirm that an impulse wave is in development, supporting a sustained move toward higher prices.
In order to confirm that a sustained move toward higher Cronos stock prices is in development, the symmetrical triangle needs to be resolved in a bullish manner. This also needs to be accompanied by a bullish MACD signal.
Only when both of these signals are generated will a bullish position in CRON stock be justified.