Technical Analysis: A Broken Downtrend Line Implies Higher Emblem Stock Prices

Emblem Stock
iStock.com/champc

EMMBF Stock: Marijuana Stocks Hit Center Stage, Once Again

I am focusing on Emblem Corp (OTCMKTS:EMMBF, CVE:EMC), a Canadian licensed producer of medical cannabis, because there are new developments on the Emblem stock chart.

These developments suggest that the bearish trend that began late last year has finally concluded, which opens the door for a bullish trend to develop, in which EMMBF stock can appreciate.

Using the EMMBF stock chart to generate a view on Emblem stock is a method of investment analysis known as technical analysis. It’s based on the notion that investments have embedded trends and that, therefore, historical data can be used to forecast the direction in which a stock is heading.

I primarily use this method of analysis because the indications that it produces are timely, which makes them extremely useful when applied to a suitable trading strategy. I have been trading for nearly two decades and, when this method of analysis is applied correctly, the results are astonishing.

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It was this time last year when the marijuana sector began to gain steam. In the months that followed, the gains that were recorded in this sector were phenomenal. The better this sector performed, the more speculative money it attracted.

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The speculation supporting this lucrative sector had reached a feverish pitch, and a blow-off in November 2016 signaled that a top had formed. This was the beginning of a drift lower, which was responsible in creating the bearish trend that is highlighted on the following Emblem stock chart.

Emblem stock chart

Chart courtesy of StockCharts.com

This EMMBF stock chart highlights a bearish trend, which is characterized by a progression of lower lows and lower highs, which is the quintessential attribute that defines all bearish trends.

I used a simple downtrend line to illustrate the bearish trend. The downtrend line was created by connecting this series of lower highs that defined the bearish trend.

This downtrend line acted as a level of price resistance that prevented the Emblem stock price from advancing. This level of resistance was tested five times, which translates into five points of contact defining this trend. This is a testament to the significance  of that resistance level. As long as EMMBF stock was trading below this trend line, I could only assume that a bear market was in development and that, therefore, lower prices were set to prevail.

That all changed on October 5, when Emblem stock broke above the downtrend line. This feat is highlighted as a breakout on the stock chart, which suggests that the bearish trend that encompassed this investment since last December has finally concluded. It also means that the door has swung wide open for a bullish trend to develop.

The backdrop is currently supporting a bullish advance because this move toward higher EMMBF stock prices has coincided with sector-wide push, in which almost all the constituents that make up this sector have staged an advance. This sector-wide push creates a rising tide, and like the saying goes, “a rising tide lifts all boats.”

This sector-wide move is indicative of speculation returning to this sector in anticipation of the Canadian government legalizing marijuana in the summer of 2018. This could mark a repeat of the price action that was witnessed last year, in which speculative money was flowing into this sector until the long-awaited announcement regarding Canadian legalization and its framework caused investors to flee in droves.

This occurrence illustrates the classic “buy on rumor, sell on news” event, in which investors wait for a catalyst to sell their perspective positions. Perhaps we are once again setting the stage for a similar outcome once Canadian legalization occurs in summer 2018.

I can spend hours speculating on possible future scenarios, but, at this moment, all I know is that this sector is moving again, and that Emblem stock stands to benefit.

Analyst Take: 

Emblem stock has just broken above a downtrend line that served to contain the price from advancing since December of last year. This feat suggests that the bearish trend in EMMBF stock has met its demise. As result, it opens up the door for a bullish trend to develop. Given the bullish backdrop that is currently in development for the marijuana sector, I have the inclination to believe that higher Emblem share prices are now on the horizon.