WEED Stock: Patience Is Warranted
I have mentioned on numerous occasions—and I couldn’t stress it enough—that when the government came out with the guidelines regarding recreational marijuana, it would cause all the speculative hot money that created a buzz in this sector to head for the exits. This event has now come and gone, and investments like Canopy Growth Corp (TSE:WEED) stock have come under a considerable amount of selling pressure as a result. This was the classic “buy on rumor, sell on news” event, and investors in WEED stock—and especially anyone who has read any of my previous publications on Canopy Growth Stock—should not be surprised by this outcome.
I have begun to field numerous requests asking me what I feel is going to happen next in this lucrative sector. My initial instincts have me believing that this sector is pretty much dead money for the remainder of the year because legalization wont occur till 2018. If I were looking for an opportunity to establish a position, I would logically point to December. December is fiscal year end and investors will most likely be shedding losing positions to offset any gains that were made in 2017.
This view may or may not come to fruition, but what I can say for sure is that I am going to be taking my cues from the WEED stock chart. I will be watching a number of indicators, waiting for them to tip me off on the next direction the stock price is going to take. There is very little doubt that this sector offers great potential. My only concern at this moment is getting on board when the stock is trending in upward direction, as opposed to its current downward spiral.
The following Canopy Growth stock chart illustrates the two indications that I am currently watching.
Chart courtesy of StockCharts.com
I will be looking for the following indications on the Canopy Growth stock chart to suggest that the current trend towards lower prices has concluded.
Firstly, the downtrend line that was established after the price peaked in November 2016 needs to be overtaken. This downtrend line is created by connecting the peaks on price chart, and it captures the trend towards lower prices, which is defined by lower lows and lower highs.
In order to suggest that this trend towards lower prices has concluded, WEED stock needs to close above this downtrend line. This trend line is now acting as a line in the sand, and as long as the stock price is trading below it, I can only assume that lower prices are likely to prevail. A break above the downtrend line would serve to suggest that the downtrend has concluded, which would open up the door for a bullish trend to commence.
The second indication would come from the moving average convergence/divergence (MACD) indicator located in the lower panel. MACD is a trend-following indicator that uses signal-line crossings to distinguish between bullish and bearish momentum.
At this current juncture, the indicator is in bearish alignment, suggesting that bearish momentum is influencing the stock price. This bearish momentum creates a headwind where the path of least resistance is tilted towards lower prices. When this indicator crosses in a bullish manner, I will be more confident that the bearish trend towards lower prices has concluded and that a new uptrend has begun.
The following Canopy Growth stock chart illustrates a couple of important levels of price support that need to be watched, one of which is currently being tested.
Chart courtesy of StockCharts.com
The first level of price support was just tested. This level of price support is defined by a number of metrics. This level of support marked the reaction lows that resulted right after the blow-off top was created in November 2016. This level also coincides with the 200-day moving average, which coincides with a historical level of price support. These three metrics suggest that this is indeed an important level of price support, and the bounce that occurred off this level should really come as no surprise.
Can a rally begin from these levels? Of course it can, but I am not sold on that idea just yet. In a publication in November 2016, I outlined that there is a long-term level of price support that if was ever tested, I would jump at the opportunity to acquire shares at this level. This level currently sits at $4.30, and represents a previous all time-high that stood for 2.5 years before it was finally broken. Upon breaking this level of resistance, the trend towards higher WEED stock prices accelerated higher until a blow-off top developed in November 2016.
This key level that was once a level of resistance is now a level of price support, and it is one that could possibly be tested in the future if the downdraft in this sector continues. If my premise is correct that bearish pressure will continue to mount through the remainder of the year, then perhaps this opportune level of price support will be tested.
Bottom Line on WEED Stock
I will be looking for a couple of indications on the Canopy Growth stock chart to suggest that the current trend towards lower prices has concluded. Once these indications turn bullish, I believe that a higher WEED stock price will prevail. At this current juncture, patience is warranted. I am closely watching important levels of price support, and if the second level of support is tested, I would not hesitate to act if such an opportunity ever did present itself.