OGI Stock: Patience Is Warranted
The government has made it clear that it is planning on legalizing marijuana, and it will outline its plan with regards to the recreational segment. Licensed producers like Organigram Holdings Inc (CVE:OGI) are going to benefit from this new legislation, as their consumer base will balloon. Perhaps this company and many like it can finally turn a profit. Some are speculating quite a handsome amount of profits as hot money continues to flow into OGI stock.
OGI stock is up 294% year-to-date, and the sustainability of this rally is always in question. Whether this rally has concluded is difficult to say. If I use the premise “buying the rumor and selling the news,” the bullish tailwind created by speculators will continue until the government finally releases the details regarding legalization. Then perhaps a larger correction will ensue.
I had mentioned in my previous report on a marijuana company that Canopy Growth Corp (CVE:CGC) stock was one of the marijuana stocks going crazy, but it’s not the only one. The mania has stretched throughout the entire sector, and Organigram stock is another marijuana producer that has caught the eye of—and bids from—investors. If you haven’t taken a look at my previous report, I implore you to do so, because the resemblance between these two stocks with regards to price action is uncanny.
The fact that these names trade so similarly only reinforces the idea that a mania is spreading throughout this sector, and that this sector is moving as one unit. It doesn’t mean that the current trend in these names has concluded. There are constructive patterns that continue to play out, and it would be wise to pay attention to them.
The following Organigram stock chart illustrates the progression of this rally.
Chart courtesy of StockCharts.com
In November 2015, Organigram stock generated a golden cross. A golden cross is a bullish signal that is produced when a 50-day moving average, highlighted in blue, crosses above a 200-day moving average, highlighted in red. This was the first signal that indicated that a bull market was on the horizon.
The OGI stock chart above is a prefect example of healthy bullish price action. Healthy price action consists of impulse waves that take the stock price higher, and consolidation waves where the new higher prices are digested. Consolidation waves are essential in a healthy trend because they alleviate any overbought conditions that may have developed as the stock moved higher.
On the Organigram stock chart above, the impulse waves are highlighted in green and the consolidation waves are highlighted in purple. The amount of time it takes for a consolidation wave to develop and complete has contracted. As a result, the trend towards higher prices has accelerated. These types of trends can continue until a blow off in price occurs.
On November 16, 2016, OGI stock and the entire sector experienced an exceptional level of volatility and a surge in volume. This calls into question the possibility of a blow-off top. Depending on the price action that follows, this could either have marked a top or another consolidation wave will develop. The key is to watch the price action.
The following Organigram stock chart illustrates the key levels of support
Chart courtesy of StockCharts.com
Whether or not a top has developed will depend on the two levels of support that are highlighted on the OGI stock chart above, and both levels are converging around one price.
The first level of support comes in the form of a horizontal trend line. This level was the previous all-time high that was set in August 2014, as OGI stock made it public that it was pursuing to become a licensed producer of medical marijuana. It took two years for the price to return to that level and, on October 18, 2016, that price was finally overtaken and has since not fallen below it.
The second level of support comes in the form of an uptrend line. This uptrend line is created by connecting the troughs on the price chart. As long as OGI stock is trading above this trend line, I can only assume that the bull market in Organigram stock is intact.
$2.30 is the price to watch; a drop below it will indicate that the rally has peaked.
Bottom Line on OGI Stock
Hot money is flowing into the licensed marijuana producers, creating a lot of volatility in Organigram stock and others like it. It is difficult to say if the rally has peaked or not. If I were looking to participate, I would wait for another consolidation pattern to develop before investing in OGI stock.