One More Signal Will Confirm That LEAF Stock Is Set for Further Gains

medreleaf stock
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MedReleaf Stock: Waiting for That Infamous Momentum Indicator

There is a lot of interest in marijuana stocks, and rightfully so. Marijuana legalization is drawing near, and cannabis will be consumed on a recreational level.

I have zero doubts that, when legalization finally goes into effect, the event will act as a catalyst to move this sector. Which direction this sector moves in following the legalization date is up for discussion, because both camps have valid arguments.

I am focusing on MedReleaf Corp (OTCMKTS:MEDFF, TSE:LEAF) stock because, on a relative basis, it has been outperforming its peers. More importantly, I am returning to follow up on my report that was published on April 18, titled “Is This the Beginning of a Move Toward Higher MedReleaf Stock Prices?

In that report, I outlined a number of indications which were suggesting that LEAF stock was set to appreciate.

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The first set of indications discussed in that report are highlighted on the following MedReleaf stock chart.

Chart courtesy of StockCharts.com

This LEAF stock chart illustrates that a very significant level of price support currently resides at $14.75.

On April 18, I outlined the idea that MedReleaf stock needed to maintain its footing above this price point in order to suggest that higher prices were likely to follow.

This level of price support coincided with the 200-day moving average, reinforcing its significance.

The 200-day moving average acts as a dividing line that separates bullish stocks from bearish ones. Whereas trading above the 200-day moving average is a bullish indication, trading below it is a bearish one.

Therefore, I can only assume that, as long as LEAF stock is trading above the 200-day moving average, a bull market is still in development.

The relative strength indicator (RSI), located in the upper panel of the chart, suggested that a possible trend reversal was likely in play.

RSI is an indicator that determines whether a stock is overbought or oversold. These extreme conditions are measured by using an oscillator that fluctuates between zero and 100. An RSI reading above 70 is overbought, while an RSI reading below 30 is oversold.

A bearish signal is generated when the RSI crosses above 70 and then crosses back below it. A bullish signal is generated when the RSI crosses below 30 and then crosses back above it. In each case, the signal suggests that the current move has run its course and that a move in the opposite direction is highly likely.

In February, a bullish RSI signal correctly implied that a rally was likely. So, when the same conditions presented themselves in April, I had the inclination to believe that another move toward higher prices was on the horizon.

This move toward higher prices is captured on the following MedReleaf stock chart.

Chart courtesy of StockCharts.com

This LEAF stock chart illustrates that, following the bullish RSI signal, the stock made a move toward higher prices, which was constructive in nature. Constructive price action consists of a wave structure containing impulse waves and consolidation waves.

An impulse wave defines the stage in a bullish trend when a stock sustains a move toward higher prices. A consolidation wave defines the stage in a bullish trend when a stock corrects and refrains from advancing.

Theses waves work together, creating and sustaining a trend. Currently, LEAF stock is within an impulse wave, implying that a sustained move toward higher prices is in development.

In order to confirm that this trend is going to continue, and that much higher prices are in development, a bullish momentum signal is required.

The momentum indicator is highlighted on the following MedReleaf stock chart.

Chart courtesy of StockCharts.com

The momentum indicator highlighted on the LEAF stock chart is the moving average convergence/divergence (MACD) indicator.

MACD is a simple, yet effective indicator that uses the crossing of a signal line to distinguish whether bullish or bearish momentum is influencing the price action in a stock.

Bullish momentum implies that a stock is likely to advance, while bearish momentum implies that a stock is likely to decline. Here’s the thing: a stock cannot sustain a move in either direction unless the applicable momentum is supporting it.

In order to assume that a sustained move toward higher prices is in development, a bullish MACD cross is required. This indicator is currently in bearish alignment, but the signal lines are converging, and a bullish signal is possible in the weeks ahead.

As a result, I am patiently waiting for a bullish MACD cross in order to suggest that much higher MedReleaf stock prices are on the horizon.

Analyst Take

Since my last report on this company, MedReleaf stock has bounced off price support and staged a move toward higher prices.

I am waiting for a bullish MACD signal in order to suggest that this move is sustainable and that new highs are possible for LEAF stock.