OGRMF Stock and the Entire Marijuana Sector Hangs in the Balance
Marijuana recently became legal in Canada on a federal level, and with this, a recreational market has been established. Investors had been waiting for this for a number of years now, and they had been showing their enthusiasm for this milestone event by bidding up marijuana stocks.
This event has now come and gone, and investors have begun to turn tail, heading for the exits. Since October 17, investors have been cashing out on their marijuana stock investments, and the selling has not abated. This selling was anticipated, because legalization was a classic “buy on rumor, sell on news” event.
The only things that may have caught some people off guard is the sheer violence of the selling pressure. The fact that the market conditions for stocks as an asset class has been awful in recent weeks has only added fuel to the fire.
Many are probably wondering if the selling pressure is going to continue and whether the pundits who were claiming that this sector had become increasingly overvalued were correct in their assessment.
In light of this, I am focusing on OrganiGram Holdings Inc (OTCMKTS:OGRMF, CVE:OGI).
I have been using the OrganiGram stock chart as a proxy in order to gauge the health of the marijuana stock sector. Throughout the bull market, OGRMF stock has been trading above a very significant level of price support.
This level of price support is captured on the following stock chart:
Chart courtesy of StockCharts.com
The above chart captures a metric known as an uptrend line. This metric was created by connecting the troughs that were produced on the stock chart.
This uptrend, which captures the price action consisting of a series of higher highs and higher lows, has been responsible for creating and sustaining the bullish trend in OrganiGram stock.
The uptrend line has done an incredible job of pinpointing where significant levels of price support reside. This trend line has been tested numerous times over the years. Each and every time the stock price has found its footing on this metric, higher prices have prevailed.
OGRMF stock’s inability to trade below the uptrend line has not gone unnoticed, which is why this line is very significant. I am using it as a dividing line between the stock’s current bullish trend and a potentially bearish one.
If the OGRMF share price ever loses its footing and starts trading below this metric, I would have to assume that the bull market in this stock has run its course, opening the door for a large correction.
Since I am also using the OrganiGram stock chart as a proxy for the whole legal cannabis sector, a break below the uptrend line would also suggest that the bull market for the entire sector has run its course. This is a lot of pressure on the shoulders of one stock.
The uptrend line is currently being tested, and in order to maintain its bullish posture, the stock needs to stay above the uptrend line. The position of the whole sector hangs in the balance.
Luckily, breaking below the uptrend line is not going to be an easy task. That’s because the line currently coincides with another metric. This metric is captured on the following chart:
Chart courtesy of StockCharts.com
The metric highlighted on the stock chart above is the 200-day moving average.
The 200-day moving average is a popular metric that investors and analysts alike use as a dividing line to determine whether a stock is in a bullish or bearish state.
Trading above the 200-day moving average implies that a stock is healthy and that higher prices are likely to prevail. Trading below it implies that a stock is unhealthy and that lower prices are likely to prevail.
OGRMF stock broke above the 200-day moving average in September 2017, and it has been using that moving average as a price support level ever since.
The 200-day moving average currently coincides with the uptrend line. The stock would need to break below both of these metrics in order to suggest that this stock (and the entire marijuana sector) are at risk of further losses.
OrganiGram stock is testing a very significant level of price support that’s currently being suggested by coinciding metrics. As long as OGRMF stock can stay above its trend line, this stock, and others in the new marijuana sector, will likely continue to move higher.