OGI Stock: Anticipated the Next Move
There is a lot of interest in marijuana stocks, and I can’t even begin to tell you the number of people who approached me praising the merits of this sector, pointing out names like Organigram Holdings Inc (CVE:OGI) stock and outlining the amount of riches that can potentially be made by acquiring Organigram stock. I continue to shake my head because this is an obvious sign that there is way too much optimism built into this sector. The current sell-off that is gripping this sector—and OGI stock—is justified, and for a number of reasons.
The first reason is something I addressed on numerous occasions, where I clearly stated that once the announcement regarding the framework behind recreational marijuana was made, it would cause the hot money that flooded into this sector to head for the exits. This was the classic “buy on rumor, sell on news” event that would precipitate such action. These investments ran up in a short amount of time, and the level of optimism surrounding this sector was astonishing. It is directly to blame for the bubble-esque valuation levels that were reached late last year.
The second reason has only recently come to light. I’m hearing of situations where certain licensed marijuana producers are unable to handle the demand from the medical marijuana segment and, as a result, have had to turn patients away. On the surface, this may seem like good news, but I assure you it’s not.
If these companies cannot keep up with current demand, then there is absolutely no chance they will be able to benefit from a recreational market. These companies will need to expand their operation by spending money and likely diluting the shareholder base.
Not all the news is bad, because I strongly believe that one day a bull market will once again show its face. The rest of this publication will outline a number of developments that I am currently watching that will help determine when this bull is set to come back.
First and foremost, I am watching key levels of price support and a key indicator on the following Organigram stock chart. These indications will be instrumental in suggesting when it’s safer to enter this market.
Chart courtesy of StockCharts.com
The first level of support has been identified using a simple uptrend line. This line was established on October 2015, when OGI stock was trading at $0.25, and is constructed by connecting the lowest points that followed. This simple trend line is quite effective at defining the predominant trend because it contains multiple points of contact that are nicely spaced out.
The uptrend line has acted as a level of price support on numerous occasions, where investors were eager to jump in and support it. The uptrend line is currently being tested, and in order to suggest that the predominant trend is still towards higher prices, the stock price need to maintain is stature above this level. Savvy investors could use this level to build a position, knowing that their risk is defined using the uptrend line.
The moving average convergence/divergence (MACD) indicator located in the lower panel is in bearish alignment, so I am weary that this uptrend line will continue to act as a level of price support. MACD is an indicator that is used to distinguish between bullish and bearish momentum.
Momentum drives a stock’s share price. Therefore, it is always wise to pay attention to see whether the bulls or bears are in control. When a bullish cross is engaged, the share price has a strong tendency to accelerate to the upside. While a bearish cross is engaged, the share price has a strong tendency to decline.
The bearish cross that was generated in December 2016 is still in bearish alignment, and it is suggesting that bearish momentum is still in force. So, as a result, the path of least resistance is still geared towards lower prices.
In all honesty, I would wait for a bullish cross before initiating a position, because it is better to have this indicator supporting your investment rather than acting as a headwind against it.
If the uptrend line fails to support the stock price, I outlined the next level of price support on the following Organigram stock chart.
Chart courtesy of StockCharts.com
This OGI stock chart illustrates the next level of price support that will come into play if this sector is victim to any more selling pressure.
This horizontal level of price support at $1.45 was established in August 2016, after Organigram stock broke above a very significant level of price resistance. This level contained the stock price from advancing on two previous occasions, in November 2015 and April 2016. Breaking above this level of resistance was the catalyst that caused this investment to accelerate, where it eventually peaked at $4.50, just three months later.
The great thing about important levels of resistance is that once they are finally broken, they become important levels of price support. If OGI stock does return to test this level from above, I believe it would be a great place to initiate a position, because at minimum I expect the stock to bounce. This level is so compelling that an investor would be hard-pressed to let such an opportunity like pass by.
Bottom Line on Organigram Stock
Organigram stock is still caught within a downdraft, but price support is fast approaching. I am watching $1.45, because that is a very compelling level of price support. The indicators are still in bearish alignment, so I would refrain from jumping in on OGI stock until the indicators are once again in bullish alignment.