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The gyrations in Canopy Growth Corp (TSE:CGC, CVE:CGC) stock have settled down over the last few weeks and volatility has contracted. I honestly believe that this little lull that has been created is only temporary and will not last long. This is perhaps the calm before the volatility storm. The question that remains is, will this be a bearish storm or a bullish one that grips CGC stock?
If you have followed any of my previous publications on licensed marijuana producers or Canopy Growth stock, then I probably sound like a broken record.
I continue to believe that the electricity powering this turntable is the speculation surrounding the legalization of marijuana. Last year, the Canadian government promised the legal framework behind legalized marijuana and the recreational market that will follow. 2017 is now here, and that announcement from the government is now only months away.
I have stated that once this news finally hits the newswires, this event will mark the point where the electricity is cut, the record stops spinning, and the music stops. I expect a sell-off in Canopy Growth stock will ensue as the “buy on rumor sell on news” event plays out.
Until that fateful day, and as long as CGC stock continues to act in a bullish constructive manner, I will have no reason to doubt my bullish view.
The following Canopy Growth stock chart illustrates why I believe that the bullish run is still intact.
Chart courtesy of StockCharts.com
The CGC stock chart above illustrates the Fibonacci retracement numbers. This is a common tool used by traders to identify counter-trend price objectives. In theory, when a stock pulls back from a primary trend, shares will retrace approximately 50% to 62% of the primary move.
This zone usually offers support, as traders will be eyeing this area to enter long positions or cover short positions. Traders refer to this zone as “the box.”
The sell-off that gripped Canopy Growth stock in November conformed to this tool perfectly, as all selling pressure abated as the price fell into the box.
The theory behind these pullbacks is that, once they are complete, the predominant trend will once again reassert itself. The indicator in the lower panel labeled “MACD” supports this notion, as it remains bullish. The moving average convergence/divergence (MACD) indicator is a trend-following momentum indicator. Signal-line crossings are used to distinguish between bullish and bearish momentum.
This weekly MACD signal is converging, which does raise some concerns but, until a bearish cross occurs, I can only assume that the bullish tailwinds generated from this indicator are still swirling.
With the weekly chart suggesting that the bull market is still intact, it is time to look at the daily chart to see if that time frame concurs.
The following Canopy Growth stock chart illustrates the constructive pattern that has developed on the daily chart.
Chart courtesy of StockCharts.com
This CGC stock chart above illustrates the numerous constructive patterns that have littered this chart. The structure of the rally contains healthy bullish price action. The healthy price action consists of impulse waves that take a stock price higher, and consolidation waves, where the new higher prices are digested.
Consolidation waves are essential in a healthy trend because they alleviate any overbought conditions that may have developed, and set up the next prevailing impulse wave.
That ever-elusive constructive consolidation pattern that I have been looking for has finally shown its face, and the completion of the consolidation wave suggests that a new impulse wave that will take CGC stock higher is now in development.
The MACD indicator in the lower panel is converging, and a bullish signal would occur while the weekly MACD is still in bullish alignment.
A bullish cross on both fronts would indicate that bullish momentum has once again overwhelmed any bearish momentum and would indicate that the bulls are once again in control. These developments would set the stage for CGC stock to test, and perhaps surpass, the all-time high that was created in November 2016.
Bottom Line on CGC Stock
Canopy Growth stock is setting up to test the the all-time high that was created in November 2016 and, as long as the signals and price action on the CGC stock chart support this notion, I will have no reason to believe otherwise.