Canopy Growth Stock Is a Well-Positioned, High-Flier Despite the Dip

CGC stock - Canopy Growth Stock Is a Well-Positioned, High-Flier Despite the Dip

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Some investors might be thinking “what are bulls smoking” in Canopy Growth Corp (NYSE:CGC). Yet a powerful ally, an industry ripe for future growth and smoking hot price chart in CGC stock are very good reasons for bulls to nibble on shares.

Let me explain.

An out-the-gate bid in CGC stock on Tuesday immediately in front of Canada’s anxiously awaited legalization of recreational marijuana Wednesday turned quickly into a case of the jitters. A gain in excess of 4% took shares of Canopy to fresh all-time-highs, but bulls buying in front of the news got nipped in the bud by an equally menacing drop of 3.88% on massive volume.

So, what’s up with CGC stock? One could blame wild price action on an anticipatory ‘sell-the-news’ reaction by an increasingly fast market. Furthermore, the element of ever-growing speculation is rampant in the budding cannabis industry. Remember those cryptocurrencies? One only need look at the price charts of industry peers like Tilray (NASDAQ:TLRY), New Age Beverages (NASDAQ:NBEV) or Cronos Group (NASDAQ:CRON) to get a whiff of the high life and how in turn, that may have led to Tuesday’s investors in CGC getting skunked.

Still, within the space Canopy has differentiated itself. First, the cannabis grower is a bonafide leader in medicinal marijuana with sales of more than $60 million this past year. The company also sports a market cap in excess of $13 billion. Some may scoff at the current spread between the two numbers, but remember recreational legalization is just getting underway. So aside from being in a potentially huge growth market, I see today’s price tag for CGC stock as emphasizing the legitimacy and durability of CGC stock.

Canopy also enjoys a strategic partnership with global beverage giant Constellation Brands (NYSE:STZ). A near 10% stake acquired one year ago was increased earlier this month as the popular brewer opened up its wallet with an additional $4 billion investment in the company. Not only does the relationship open up massive distribution and marketing possibilities for Canopy — it also gives CGC stock a solid stash of cash to operate from.

CGC Stock Weekly Chart

CGC Stock Weekly Chart
Source: Charts by TradingView

The technical picture looks equally supportive of CGC stock being the real deal for investors, despite some volatile lumps along the way as the weekly chart of Canopy illustrates. Following Constellation’s late August cash injection, a bullish price spike gave way to several loose weeks of back and forth activity. My observation is that the action in CGC stock most resembles a symmetrical triangle consolidation.

Once it’s broken out of, this type of price congestion is most often seen as a continuation pattern, and Tuesday marked just that sort of technical event. As mentioned though, the about-face by investors has put the breakout in question.

Nevertheless, I see a couple ways to play Canopy Growth stock as a bull.

One method of buying Canopy shares is to buy Tuesday’s pullback as prior pattern resistance is tested for support. Given CGC is prone to wild price swings, my suggested stop would be to set a stop below $49. That amounts to roughly 8% risk and only takes traders out of the position in the event shares fall below the apex or neutral line within the triangle.

Alternatively, waiting to see if Tuesday’s “sell-the-news” reaction turns into a one-off or not, may be a smart approach. If Canopy Growth stock begins to reassert its bullish trend with a move through the former high of $56.60, traders wanting to wait for momentum would have a promising start. In that scenario, I’d also look to use a $4 stop below $52.60. That’s slightly below Tuesday’s close, which given Tuesday’s price action and technical support is important to respect — or risk having a position really going up in smoke.

Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. . For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

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