Further Upside Expected for Marijuana Stocks
This once frowned-upon sector of the underground economy is going mainstream, and it will eventually only share the same level of stigma as alcohol. Every day that passes, we inch closer to the long-anticipated day when marijuana will be legalized.
Hot money continues to flow into marijuana stocks in anticipation of the federal government announcement that will outline the framework for legalized marijuana, including for the recreational market.
This anticipation has caused a frenzy of speculation to tun rampant in licensed marijuana producers like Emblem Corp (CVE:EMC), and I have reason to believe that there is still some speculative fuel left in the tank to drive Emblem stock higher.
I need to reiterate my views on this sector just to clarify where I stand. I have been saying for quite some time that the speculation surrounding this sector will continue to drive the bull market in this sector up until the point when the federal government makes its fateful announcement regarding marijuana legalization.
After this announcement is finally made, I expect a selloff to ensue. This is the classic “buy on rumor sell on news” event, in which the selloff that follows will be driven by speculators exiting the market.
My bullish beliefs surroundings Emblem Corp and higher stock prices are supported by indicators and bullish price action that have been generated and produced on the Emblem Corp price chart.
The following EMC stock chart illustrates the indications that support further price gains.
Chart courtesy of StockCharts.com
Emblem stock has only been publicly trading since December 12, 2016 but, even with this little data, the price pattern has been constructive.
An ascending channel is now under development in the EMC stock chart. This technical trading pattern contains two upward-sloping trend lines that has contained the price of emblem stock. These trend lines represent support and resistance, and the price will oscillate between these two levels as the trend progresses. As long as the price remains within the confines of this channel, the trend toward higher prices is sustainable.
The indicator labeled “MACD” in the lower panel of the above chart is now supporting the notion that an advance in price is in the making. This moving average convergence/divergence (MACD) indicator is a simple, yet effective, momentum indicator. Signal-line crossings are used to distinguish between bearish and bullish momentum.
In the little time that Emblem corp has been publicly traded, this indicator has had some great success in confirming the trend. On January 16 of this year, a bearish cross was generated, indicating that bearish momentum had gained the upper hand and suggesting that the path of least resistance is toward lower prices. The selloff that followed confirmed this notion.
We are now in the midst of a bullish cross, which will indicate that bullish momentum has once again overwhelmed any bearish momentum. This serves to suggest that the path of least resistance is now toward higher prices, implying that an advance in Emblem stock is now underway.
The following Emblem stock chart illustrates the price action that supports the notion that an advance in this marijuana stock is underway.
Chart courtesy of StockCharts.com
The EMC price chart above illustrates bullish constructive price action.
Bullish constructive price action consists of impulse waves that advance the price, and consolidation waves that alleviates any overbought conditions and set up the next advancing impulse wave. This alternating wave structure is constructed of building blocks of a sustainable trend.
The surge of the December 2016 lows constitute an impulse wave, which is highlighted in green on the chart above. The drift toward lower prices that began on January 11 of this year constitutes the consolidation wave, and it is highlighted in purple on the chart above.
These patterns are especially constructive because, not only do they identify the next discretion in the price, they are instrumental in providing a potential price objective.
This price objective can be generated by using the theory surrounding impulse waves that are separated by consolidation waves. The theory states that the consolidation wave acts as a midpoint and, as a result, there is a tendency for impulse waves to mirror each other in terms of length.
Applying this theory to the pattern that has presented itself above produces a potential price objective of $5.40. This price objective coincides with resistance outlined by the ascending channel and, therefore, this price objective has more credence.
The breakout that is highlighted above indicates that the consolidation wave is now complete, and a new impulse wave is now in development, putting the price objective of $5.40 into play.
Bottom Line on Emblem Stock
Speculation continues to drive marijuana stocks, and Emblem stock is no exception. The price pattern on the EMC stock chart continues to support the notion that higher prices are likely. A government announcement is imminent and, until that fateful day, the bull market in marijuana stocks is set to continue.