Cannabis Stock: MedReleaf Stock Surges as Expected

MEDFF stock
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MEDFF Stock: Running Away to the Upside

2017 is proving to be quite the volatile year for marijuana stocks. After a lackluster start to the year, many players in this space have made quite impressive turnarounds, and they are heading into the year’s end sporting very impressive gains.

MedReleaf Corp stock (OTCMKTS:MEDFF, TSE:LEAF) stands out, particularly because—since late summer—it has staged an incredible run toward higher MEDFF stock prices. Just to put things in perspective, since MedReleaf stock bottomed in August, it has run up by 127.9%.

This run should be no surprise to many, because marijuana is set to become legal in Canada on July 1, 2018. That date will mark when recreational marijuana becomes available to every Canadian who is of legal age to possess it.

Much of the speculation driving marijuana stocks is stemming from this stature, and it has recently gone into overdrive following the announcement that Constellation Brands, Inc. (NYSE:STZ) bought a stake in Canopy Growth Corp (OTCMKTS:TWMJF, TSE:WEED).

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Constellation Brands is an international wine, beer, and spirits company, and its venture into the marijuana market is seen as strategic, because many are forecasting that marijuana sales will take away from alcohol sales. This has sparked a new round of speculation that other alcohol companies are inclined to follow in their footsteps, which has added fuel to the current frenzy in marijuana stocks.

Many might have been expecting a run-up in the marijuana producers, but perhaps the magnitude of the current gains has caught some off guard. I have the fortitude of saying that this move toward higher stock prices was not a surprise.

In an October 16 publication titled “Cannabis Stock: The Sky Is the Limit for MedReleaf (OTCMKTS:MEDFF),” I even outlined why I was expecting a move toward much higher prices. This inclination for higher LEAF stock prices was based on a particular price pattern that has served me extremely well.

This pattern is highlighted on the following MedReleaf stock chart.

MedReleaf price chart

Chart courtesy of StockCharts.com

This simple stock chart contains no underlying indicators, and it is strictly based on price action. This stock chart shares similar characteristics with companies such as Facebook Inc (NASDAQ:FB), Alibaba Group Holding Ltd (NYSE:BABA), and Shopify Inc (NYSE:SHOP). If you’re not familiar with them, let me just say that they have performed extremely well.

This characteristic is based on the simple notion of an all-time high that was created shortly after the company began trading on the open market.

Once this high was taken out, it set off an epic run toward higher stock prices. The run is driven by the notion that anyone who had ever bought a share in MedReleaf stock was sitting pretty, holding a profit while anyone holding a bearish position was holding a loss.

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As the price continues to trek higher, it places more pressure on those who are holding bearish positions to cover, while momentum traders are flocking to this name because it is performing well. This dynamic creates the necessary condition in which the stock prices can run away to the upside. And that is, indeed, what has occurred with this stock.

The runaway rise has been constructive in nature and this price action is captured on the following MedReleaf stock chart.

MedReleaf stock chart

Chart courtesy of StockCharts.com

This stock chart illustrates the alternating wave structure of impulse waves and consolidation waves that is responsible for creating constructive price action.

The impulse waves are highlighted in green, and they capture the stage in a bullish trend when the stock price is characterized by an aggressive and relentless move toward higher stock prices.

The consolidation waves are highlighted in purple, and they capture the stage in a bullish trend when the stock prices refrain from advancing in order to set up the next advancing impulse wave.

The current impulse wave has made a substantial move in very little time. MedReleaf stock has appreciated to the tune of 52.25% since my last publication about this company. If I were long on this stock, I would be looking to protect these gains.

I learned a long time ago that chasing an impulse wave is never a good trading strategy, because a correction can ensue at any moment. As a result, I would wait for a consolidation wave to develop, because it is instrumental in defining risk in a trading strategy.

Analyst Take: 

MedReleaf stock has been acting as expected, and its bullish run toward higher prices has accelerated in very short order. If I were long on this stock, I would have been placing appropriate stops in order to protect these gains.

And if I were inclined to enter into a position, I would not chase this current move, because the risk of a correction is high. Instead, I would practice discipline, which entails waiting for a constructive pattern to develop to trade against.