LEAF Stock: Patience Is Warranted
The first quarter of 2018 has come to a conclusion and, in terms of stock market performance, it was not a good one.
The markets were plagued with uncertainty as they were trying to come to grips with a number of market-moving events. These events resulted in elevated levels of volatility, which led to wild market swings, with the predominant trend being toward lower prices.
The high-flying marijuana sector was no exception, as this sector corrected quite significantly along with the markets. The good news is that the volatility will subside, because it always does, and then another move toward higher prices will follow.
I am focusing on MedReleaf Corp (OTCMKTS:MEDFF, TSE:LEAF) stock because it has recently been testing a very significant level of price support. It is very important that LEAF stock maintain its stature above this level of price support because any chance at staging a move toward higher MedReleaf stock prices hangs in the balance.
This level of price support is highlighted on the following MedReleaf stock chart.
Chart courtesy of StockCharts.com
This LEAF stock chart illustrates that a significant level of price support currently resides at $14.75. This level was first established in November 2017, when MedReleaf stock gapped above this price point.
Since that date, there have been valiant attempts at breaking below this level of price support, but every attempt thus far has failed. This level is now being reinforced by the 200-day moving average.
The 200-day moving average is a popular metric that acts as a dividing line that separates stocks trading in a bullish trend from stocks trading in a bearish trend.
Distinguishing between these two polar opposites is quite easy because it depends on what side of the moving average the stock is trading on. A stock trading above the 200-day moving average is bullish, while a stock trading below it is bearish. It is that simple.
The 200-day moving average is known to act as both a level of price support and a level of price resistance. In this circumstance, the 200-day moving average is adding another pillar of support, substantiating the significance of the $14.75 price point as a significant level of price support.
The previous two tests of support have coincided with bullish signals from the relative strength indicator (RSI), which is located in the upper panel of the chart.
RSI is used to determine whether a stock is overbought or oversold. These extreme conditions are measured using an oscillator that fluctuates between zero and 100. An RSI reading above 70 is deemed to be overbought, while an RSI reading below 30 is deemed to be oversold.
A signal is generated when the RSI crosses above 70 and then crosses back below it, or when the RSI crosses below 30 and then crosses back above it.
The former is a bearish signal and the latter is a bullish one. In each case, once a signal is generated, it suggests that the trend that preceded it has run its course and that a move in the opposite direction is highly likely.
The last two bounces off of price support have coincided with bullish RSI signals, and impressive bounces in LEAF stock have followed.
In order to suggest that much higher LEAF stock prices are in development, I am awaiting a signal from the indicator highlighted on the following MedReleaf stock chart.
Chart courtesy of StockCharts.com
The indicator highlighted in the lower panel of this LEAF stock chart is the moving average convergence/divergence (MACD) indicator.
MACD is a simple and effective trend-following momentum indicator that uses the crossing of a signal line to determine whether bullish or bearish momentum is influencing the price action in a stock.
Bullish momentum implies that a stock is geared toward higher prices, while bearish momentum implies that a stock is geared toward lower prices.
MACD is a very influential indicator because a stock cannot sustain a move in either direction unless the applicable momentum is supporting it, which is why this indicator has identified bullish and bearish moves with such great precision.
The MACD indicator is currently in bearish alignment, supporting the notion that a correction in MedReleaf stock is still in development. I am waiting for a bullish MACD cross to appear, which would suggest that the current correction has run its course and that higher MedReleaf stock prices are likely to follow.
MedReleaf stock has corrected significantly from its highs. In order to suggest that a move toward higher stock prices is in development, LEAF stock needs to maintain its posture above a significant level of price support (which resides at $14.75) and generate a bullish MACD signal.