HYYDF Stock: A Bull Market Hangs in the Balance
October was not a good month for stocks. Marijuana stocks, the market darlings, held up well at the beginning of the month, but once legalization in Canada became a reality, these stocks joined in on the selling.
The selling has been relentlessness, and significant losses have mounted since October 16. The pain investors are experiencing is probably making them wonder if this bull market has been shelved for the time being.
I have some good news to share with the bulls. Yes, the selling pressure has been painful, but many stocks in this sector have maintained their footing above significant levels of price support.
For example, let’s take a gander at HEXO Corp (OTCMKTS:HYYDF, TSE:HEXO). It is currently testing coinciding levels of price support.
The first two levels of price support are highlighted on the following HEXO stock chart.
Chart courtesy of StockCharts.com
The levels of price support currently being tested are the parameters outlined by an ascending triangle and the 200-day moving average.
An ascending triangle is a technical price pattern that is created when the price action is characterized by a sequence containing a series of higher lows and a static high. Connecting the peaks and troughs created by this price action, using trend lines, is how I captured this pattern. These trend lines outline the parameters of this price pattern.
On August 27, 2018, HEXO stock exited this pattern by breaking above the trend line that represented price resistance. This event, highlighted as a breakout on the chart above, completed the pattern. This suggested that higher HYYDF stock prices were like to follow.
As suggested, HYYDF stock did appreciate, and it tacked on an additional 64.83% in gains in the days following. This move came to an end on October 17, and lower HEXO stock prices have since prevailed.
By October 23, HYYDF stock had given up all the gains that followed the breakout, and it was testing the breakout point from above. Returning to test a previous level of price resistance is known as a backtest.
Backtests serve a number of purposes. They reaffirm that the original breakout was legitimate, while simultaneously establishing the breakout point as a new level of price support.
The backtest that is currently taking place is very significant. Not only is it testing the ascending triangle from above, but it is also testing the 200-day moving average.
The 200-day moving average is the stock’s average price over the last 200 trading days. This metric is then plotted on the stock chart and used as an indicator.
This indicator separates stocks that are in a bullish state from stocks that in a bearish state. Determining which state a stock is in depends on which side of the 200-day moving average the stock is trading on. The 200-day moving average essentially works as a dividing line.
HYYDF stock is trading above the 200-day moving average. As long as it remains there, I can only assume that the stock is in a bullish state and, therefore, a bull market is in development.
The popularity of this metric is why it has a habit of acting like a significant level of price support. For example, in July and August, the 200-day moving average was tested, and investors were eager to come in and support the stock price at this level.
HEXO stock needs to maintain its position above this level of price support or it will put its entire bullish trend into jeopardy. The following HEXO stock chart illustrates why.
Chart courtesy of StockCharts.com
This HYYDF stock chart illustrates that since July 2017, HYYDF stock has been making a series of higher highs and higher lows. This price action is a quintessential characteristic that defines a bullish trend.
The uptrend line, drawn on the chart above, captures this bullish trend. It was created by simply connecting the series of higher lows using a trend line.
The uptrend line, like the previous indications that were highlighted, also pinpoints where a significant level of price support can be found.
All three metrics are suggesting that HEXO stock has reached a significant inflection point. Remaining above price support suggests that a bull market is still in development. Breaking below it, on the other hand, would suggest that this bull market has been shelved for the time being.
In order to continue suggesting that HEXO stock is in a bull market and higher stock prices are likely to prevail, HYYDF stock needs to remain situated above these coinciding levels of price support.