Use This Indicator to Determine When Tilray Stock Is Likely to Correct

TLRY-Stock
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TLRY Stock: The Moves That Follow Will Be Big and Violent

On August 15, 2018, news broke that Constellation Brands, Inc. (NYSE:STZ) was significantly increasing its ownership stake in Canopy Growth Corp (NYSE:CGC) and was willing to pay a premium above fair market value to do so.

For those who can recall, this is exactly the same tactic that Constellation Brands used when it acquired its initial stake in Canopy Growth stock late last year. That announcement ended up being a catalyst that sent investors into a feeding frenzy, bidding up marijuana stocks and driving their prices substantially higher.

With this recent announcement being structured that same way, it should not be too surprising that the outcome has had a similar effect. Since news broke on August 15, marijuana stocks have gone on an absolute tear toward higher prices.

Tilray Inc (NASDAQ:TLRY) has been a clear beneficiary of this news event. Ever since the news broke, Tilray stock has appreciated to the tune of 270.56% in 15 trading days. This is an incredibly large move in a very short amount of time.
Looking back, this move was not totally unexpected, because the price action depicted on the TLRY stock chart was very telling.

The price action I am referring to is captured on the following Tilray stock chart.

Chart courtesy of StockCharts.com

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The stock chart above illustrates that Tilray stock created an initial high of $34.10 shortly after it began trading on a public exchange. Once this high was formed, a correction followed where TLRY stock corrected by 36.95% over the course of six days before the stock price finally found its footing.

As is always the case, it took a little bit longer to regain those losses—13 days, to be exact. On August 20, 2018, Tilray stock broke out to a new high. Higher prices have prevailed ever since.

This characteristic price action is among my favorites, if not my favorite, because of the powerful moves that follow.

The reason why is that once TLRY stock broke above its initial high created shortly after inception, it removed the last level of price resistance that could contain the stock price from advancing. This opened up the door for sky-high prices to follow, and boy, did the Tilray share price take advantage of its newfound freedom!

The characteristic I just outlined is shared among some of the most famous and best-performing stocks. Look no further than Shopify Inc (NYSE:SHOP) and Facebook, Inc. (NASDAQ:FB) for prime examples because they share this exact same characteristic. When these stocks broke above their initial highs after inception, it marked the beginning of an epic move toward higher stock prices.

Many are wondering if this epic move toward higher TLRY stock prices is going to continue. That is why I outlined the relative strength indicator (RSI). I believe this remarkable move will continue as long as the RSI is embedded above 70.

Let me explain how this works. The RSI is an oscillator used to measure whether a stock is overbought or oversold. A reading above 70 is overbought, while a reading below 30 is oversold.

Contrary to popular belief, just because a stock is overbought does not mean it is likely to correct. It’s quite the opposite, actually. As long as the RSI remains above 70, it suggests that an accelerated move toward higher stock prices is in development.

Only when the RSI closes below 70 is a signal finally generated, suggesting that the TLRY stock price is likely to correct. Until that event occurs, trying to determine when Tilray is going to form a top is, and has been, a dangerous game to play.

One thing is for sure: RSI is reaching an extreme as it sits at a reading of 88.43. This does not mean that prices cannot run further. What it does mean is that volatility at this stage is something that needs to be accounted for because the moves and intra-day swings in Tilray stock that follow are going to be big and violent.

Analyst Take

Tilray stock has gone on an incredible run in recent weeks, leaving many wondering when the TLRY stock price is going to correct. I believe that once RSI closes below 70, it will signal that a correction has begun.