Cannabis Stock: NEPT Stock Will Soar if This Happens

Neptune-Wellness-Solutions-Inc-Stock
iStock.com/Anton Malov

This Is All That Stands in the Way of Much Higher NEPT Stock Prices

Investors are tickled pink about marijuana-related stocks. The recent round of enthusiasm is centered around cannabidiol (CBD), the non-psychoactive property found in marijuana.

CBD will not get you high, but it does have many health benefits. For instance, a CBD-based drug was just cleared by the Food and Drug Administration (FDA) to treat seizure disorders. This news fueled further gains in the marijuana stock sector, especially for companies that deal in CBD and CBD-infused products.

The market’s enthusiasm for cannabidiol and marijuana extracts is why I am currently focusing on Neptune Wellness Solutions Inc (NASDAQ:NEPT). In June of this year, this company signed a multi-year agreement with Canopy Growth Corp (NYSE:CGC) to provide it with cannabis extracts.

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In this environment, Neptune Wellness Solutions Inc sounds quite compelling. But what I really like about the company is that there are a number of technical indications that are currently suggesting that its stock price is on pace for further gains.

For one, a bull market has been in development since the summer of 2017. The technical indication highlighted in the following chart suggests that a bull market is still in development.

Chart courtesy of StockCharts.com

This chart illustrates that a few months after Neptune stock bottomed at $0.70 on August 15, 2017, the stock began to appreciate. This caused the 50-day moving average to cross above the 200-day moving average on November 27, 2017. This crossing of the moving averages is called a “golden cross,” a technical signal used by investment professionals to confirm that a bull market is in development.

Since that fateful day in November, higher prices have prevailed and the moving averages responsible for creating the golden cross have remained in bullish alignment. This supports the notion that a bull market in NEPT stock is still in development.

The entire time this market has been in development, the price action has remained constructive in nature, which reinforces the notion further.

The constructive price action is captured in the below chart:

Chart courtesy of StockCharts.com

Constructive price action consists of a bull market wave structure containing impulse waves (green), which indicate when a stock sustains a progressive move toward higher prices, and consolidation waves (purple), which capture where the gains from the previous advance are digested. These waves work together, creating the stair-step price action that bullish trends are so famous for.

The waves within this wave structure have been supported by the moving average convergence/divergence (MACD), a technical indicator that investment professionals use to determine whether bullish or bearish momentum is influencing the trading action.

This information is important because, in a bull market, bullish momentum is responsible for helping a stock sustain a move toward higher prices. This is why the development of impulse waves have coincided with a bullish MACD signal.

Something similar can be said about a bearish MACD signal; in a bull market, bearish momentum is responsible for containing the stock price, preventing it from advancing. This corrective price action ultimately creates the conditions necessary for a sustained move to follow.

In August, a bullish MACD signal was generated, confirming that an impulse wave was in development. Since that signal was generated, a sustained move toward higher stock prices occurred.

All of the technical indications that I have outlined thus far are supporting the notion that a bull market is in development.

This bullish backdrop is very important because, if we take a step back and look at the NEPT stock chart on a longer time frame, we can see that the stock is currently testing a very important and significant level of price resistance:

Chart courtesy of StockCharts.com

This Neptune stock chart highlights a significant level of price resistance that resides at $5.14, which was first established in August 2007. It was revisited in July 2012, and now it is being tested again. This level of price resistance is all that currently stands in the way of much higher prices.

The technical indications that I outlined earlier, which are suggesting that a bull market is still in development, are why I am currently watching for a break above this level of price resistance. I firmly believe that, once resistance is broken, much higher NEPT stock prices are likely.

Analyst Take

The technical indications I have outlined all support the idea that a bull market in Neptune stock is still in development.

If Neptune stock Inc is actually destined for much higher stock prices, it will need to break above price resistance first.