WEED Stock: Patience Is Still Warranted
The entire marijuana stock sector is under pressure, and not a single name is being spared, as liquidation is the order of the day. Canopy Growth Corp (TSE:WEED, CVE:CGC) stock and its peers are now in a free fall, to the dismay of many investors who only foresaw upside in this lucrative new segment of the economy.
I can firmly say that this abundance of selling pressure has not come as a surprise; I have been warning for months that such a scenario would play out. I will now outline what I believe are key levels of price support on the WEED stock chart, as well as the triggers that I would require in order to establish a bullish view on Canopy Growth stock once again.
I can honestly say that I have mentioned the repercussions that would follow the Canadian Government’s announcement regarding legalization so many times that even I began to get sick of hearing it. This was, and is, the classic “buy on rumor, sell on news” event that was finally fulfilled when the Canadian Government announced the framework behind the recreational marijuana sector. If you have been following my writings on this sector, you were forewarned of such an event.
This selling will end. The only question is when.
Right off the bat, this price chart illustrates that two key levels of price support were broken in May. Was this break of support a mere coincidence that coincided with the “sell in May and go away” mantra? I’ll leave that question for those much wiser than me. What I do know for sure is that the selling pressure intensified once these levels of support were broken.
The following Canopy Growth stock chart illustrates the key levels of price support that I have been watching.
Chart courtesy of StockCharts.com
Support #1 was at $7.65, and it was established following the reaction low that occurred after WEED stock created its blow-off top in November 2016. The other level of support was the 200-day moving average, which acts as the dividing line that determines whether an investment is trading in a bull market or a bear market. Trading above this moving average means that the stock is bullish. Trading below it means the stock is bearish. It’s just that simple.
The 200-day moving average was the first level of support to fall, and Support #1 quickly fell shortly afterwards. This now leaves Support #2.
Support #2 sits around $4.30, and it marks the previous all-time high in Canopy Growth stock that was established shortly after the company started trading publicly. It took nearly three years for the stock price to return to this level and break above it. The break above this level coincided with the acceleration in the company’s stock price as the enthusiasm surrounding this sector began to grow exponentially.
Support #2 is where I would be waiting to acquire a position if that opportunity would ever present itself. Returning to test a previous level of price resistance from above is not an uncommon event. It serves to reinforce that this is a new level of price support, and I expect, at minimum, for a bounce to occur off this level.
In order to establish a bullish view on Canopy Growth stock, I need the following indications to generate that view.
Chart courtesy of StockCharts.com
I have outlined two distinct indications on the price chart above.
The first indication I require in order to generate a bullish view is for WEED stock to break above the downtrend line that was established after the share price peaked in November 2016. This downtrend line defines the current bearish trend that began after the share price peaked at $17.86, and it is created by connecting the peaks on the price chart that followed. This downtrend line is acting as the dividing line that separates this investment from a bull market. This downtrend line has been tested a few times, and it is currently serving to contain the stock price below it.
The second indication I require in order to generate a bullish view is a bullish indication from the moving average convergence/divergence (MACD) indicator located in the lower panel. MACD is a momentum indicator that is used to distinguish between bullish and bearish momentum. The distinction between these two is created using the crossing of a signal line.
A bearish cross was generated in February 2017, and it is serving to suggest that bearish momentum is influencing the trading in Canopy Growth stock. This bearish momentum creates an environment where the share price is geared towards lower prices. The MACD indicator remains in bearish alignment, implying that there are no signs, at this moment, that this bearish momentum is abating. In order to generate a bullish view on this investment, I require a bullish cross of the signal lines, indicating that bullish momentum is influencing WEED stock once again.
Bottom Line on Canopy Growth Stock
Selling pressure is pounding the marijuana stock sector and Canopy Growth stock has become victim to it. I will be looking for a test of an important level of price support as an opportunity to acquire a position, because I believe it will act to halt this current decline. More importantly, I will require two technical signals to generate a bullish indication before I can truly hold a bullish view on this investment.