Some of the big names in the Marijuana industry surged 10 – 30% on Wednesday. This is a very important time on the charts for these companies. Starting with Canopy Growth Corporation, let’s review the chart.
The stock had a few uptrends and consolidation periods. When CGC listed on the NYSE, the stock accelerated into that date, then paused and consolidated into July. In August the stock doubled, and investors endured huge volatility leading into October. After the stock dropped 50%, it bounced on the 200-day moving average. With the recent rally, the stock is approaching the consolidation zone which should create plenty of overhead resistance. The PPO momentum curve turned up and crossed its signal line to finalize the chart. With parabolic charts, they rarely give the investor the chance to get in or out at rational points.
On the weekly chart below, the position looks more bullish, but the setup has some risks from a technical perspective. The relative strength continues to trend higher which is simply the strongest possible message. As long as this marijuana stock continues to outperform the index, it will attract capital. Notice in a big bull market run, the full stochastic can keep turning up above the 20% line. This may happen again. That is a very bullish trait. The stock continues to find support at or near the 40-week moving average in green. The volume burst suggests this may be a bubble situation but currently it is still bullish.
I have a couple of critical questions created by the PPO. The most recent high on the PPO was significantly lower than the previous high. This suggests lower momentum. But the good news is the PPO is still at a very high level. When it is below 2% that would be more concerning. With the height at 20%, this is still strong.
The second thing to notice is the uptrend in momentum on the PPO. The July highs of 2018 are significantly higher than 2017 which implies improving lows in momentum. Because the stock price moves so fast, the stock is excellent for trading but needs a lot of focus. Should the PPO breakout to the topside, this is very bullish. If the PPO broke down through the upward sloping trend line, this is a problem.
The bottom line is that the setup is still bullish. However, should the stock fail here, this overhead resistance shown on the daily chart is a cautionary flag. If the stock starts to break down, be cautious. The stock is at one of the most important inflection points. Be careful of being caught up in the optimism. Follow the price action closely.