WEED Stock: Awaiting a Resolution
Marijuana stocks. Just the sounds of these two words side-by-side puts a slight smirk on my face. I could have never fathomed that marijuana would become legal in my lifetime, let alone that I would be analyzing investments in this sector like Canopy Growth Corp (TSE:WEED). There is a tremendous amount of eyes on this sector and for good reason, there is tremendous opportunity in this sector. Colorado is great example of the type of revenues this industry can generate, and the benefits to an economy are widespread. This and similar rhetoric is what caused droves of investors to pour hot money into this sector. This hot money enabled WEED stock to post a 2016 return of 207.74%.
The problem at this juncture, from an investing standpoint, is that when the general public starts to participate, it usually means that much of the gains have been made. This is when there is usually a transfer of wealth from the investors who are chasing performance to the savvy investors who got in early, understanding the ramifications. Is this a top in Canopy Growth stock? Questions like this are difficult to answer until after the fact.
I have been mentioning since November of last year, after marijuana stock experienced an extraordinary amount of volatility, that it would be prudent to wait for a constructive price pattern to develop before committing to an investment position. A constructive price pattern can be used to base an investment strategy around because a completed pattern would help determine the next direction the stock is heading in. That ever elusive constructive pattern has now presented itself.
Before I delve in to the WEED stock chart, I need to clarify that my views on a potential investment are based on technical analysis. The method of investment analysis is based on the notion that historical price and volume data can be used to discern a trend, and forecast future prices. As a result, my analysis is heavily weighed on my abilities to decipher the patterns and indications that are generated on an investment’s price chart. I have been sharpening my skill in this method for nearly two decades and have created successful trading strategies as a result.
The following Canopy Growth stock chart illustrates the constructive pattern that has developed.
Chart courtesy of StockCharts.com
The constructive pattern I have been long waiting for has finally shown its face. The constructive price pattern on the price chart above is a symmetrical triangle. This is my favorite technical price pattern because it is known for its explosive reaction after the pattern has been completed.
A symmetrical triangle can be defined by using two converging trend lines. The upper trend line acts as level of price resistance, and the lower trend line acts as a level of price support. As this technical pattern develops, the stock will oscillate between these levels of support and resistance. As the pattern progresses, the range between support and resistance will contract, and this confinement of space will cause momentum to build within the pattern. When price exits the pattern, this stored momentum is finally released, and a surge in price can be expected.
The price chart above illustrates this confinement of space as the distance between price support and price resistance continues to shrink. The range is so tight that there is less than $1.00 separating support and resistance. A break above resistance would suggest that higher stock prices are likely to follow, while a break below support would suggest that lower stock prices are likely to follow.
This type of constructive pattern is nothing new for WEED stock, as it continues to generate similar patterns. The previous advance was fueled by a similar price action, and examples of these constructive price patterns are illustrated on the following Canopy growth stock chart.
Chart courtesy of StockCharts.com
Notice a common theme? The constructive triangle pattern has become a defining characteristic in the trading action of WEED stock. Every time this constructive pattern has developed, the share price has exited the pattern in upwards direction and an advance has ensued. Waiting for a constructive price pattern to develop takes patience but it creates a backdrop upon which an applicable trading strategy can be built. This is the reason why I specifically look for constructive price patterns when I am looking for a potential investment candidate.
Bottom Line on WEED Stock
I am keenly watching Canopy Growth stock as a resolution to the constructive price pattern will dictate the next direction this marijuana stock is heading in. I can’t say for certain the direction in which price will break out, so I will wait for a resolution to the price pattern before I support any investment bias on WEED stock.