OGRMF Stock Is Taking Cues From the Price Action
Marijuana stocks are on the move as investors and corporations across the globe have come together to embrace this sector.
This drug that was once shunned is now being accepted with open arms. On October 17, 2018, marijuana is officially going to become a legal recreational substance in Canada. It will be treated with the same respect and limitations as alcohol.
This is in itself a perfect reason why companies like Constellation Brands, Inc. (NYSE:STZ) want a piece of this sector; marijuana sales are expected to disrupt the current stream of alcohol sales since consumers will now have alternative options to alcohol.
The bull market in this sector has been raging for a number of years now. As a result, valuations have been on the rise. Pundits and analysts long ago came out of the woodwork, arguing that valuations have become stretched and are not justified by market fundamentals.
Subjects such as this one are always up for discussion. Thus far, these pundits and analysts have been completely wrong, as valuations have continued to increase.
However, it is true that the markets do become irrational on occasion. That’s why, when it comes to what a stock is likely to do next, I continue to take my cues from that stock’s price action.
I am focusing on OrganiGram Holdings Inc (OTCMKTS:OGRMF, CVE:OGI) because I believe OGRMF stock is currently setting up to make another move.
This first move began in August 2018, when OrganiGram stock was finally able to break above a significant level of price resistance, opening the door for further gains to follow.
The level of price resistance I am referring to is captured on the following chart.
Chart courtesy of StockCharts.com
This stock chart illustrates that for much of 2018, OrganiGram stock was having a difficult time advancing beyond the $4.57 price point.
This price point was a formidable level of price resistance. It was responsible for creating a technical price pattern known as a cup and handle.
To clarify, a cup and handle price pattern is identified by its two distinct troughs, wherein the first trough is much larger than the second.
These troughs are created when a significant level of price resistance prevents the stock price from advancing beyond it. This inability to move forward and appreciate causes the stock to sell off. These sell-offs create the troughs that depict this pattern.
What makes this price pattern exquisite is that each trough found price support right on the 200-day moving average.
The 200-day moving average acts like a dividing line that separates stocks trading in a bullish state from stocks trading in a bearish state.
The sheer fact that a cup and handle price pattern was using the 200-day moving average as a level of price support was an indication that the pattern was likely to resolve itself in a bullish manner by breaking above the infamous level of price resistance at $4.57.
Price resistance finally fell on August 27, when OrganiGram stock closed the trading day at $4.72. This event is highlighted as a breakout on the chart above, and higher prices have since followed.
Since mid-September, a new price pattern has been in development. I am watching this pattern with great anticipation because I believe it will determine what OGRMF stock does next.
The technical price pattern I am referring to is captured on the following stock chart.
Chart courtesy of StockCharts.com
The technical price pattern captured on this OrganiGram stock chart is a symmetrical triangle.
Triangle patterns, like this one, are created when the price action is characterized by a sequence containing a series of lower highs and higher lows.
Connecting the peaks and troughs on the price chart creates two converging trend lines. These trend lines pinpoint where price resistance and price support reside. The next sustained move in OGRMF stock is predicated on the stock’s ability to exit the parameters identified by these trend lines.
Once a breakout occurs, the stock price is expected to continue moving in that direction. A bullish breakout would imply that new highs are on the horizon. A bearish breakdown would imply that the previous level of price resistance responsible for creating the cup and handle price pattern is set to be tested.
Given that the overall trend is bullish and that triangle patterns have a tendency to act as continuation patterns, I have the inclination to believe that a bullish outcome is likely.
Ever since OrganiGram stock broke above price resistance in August 2018, higher stock prices have prevailed. At this moment, the next directional move in OGRMF stock is predicated on its ability to break out of the pattern that is currently in development.