Shares of Canopy Growth Corp (NYSE:CGC) remain volatile, which comes as little surprise for investors. While CGC may be one of the more tame names among cannabis stocks, the industry is no stranger to volatility. Optimism towards CGC stock has grown over the past month, although CGC stock price has dropped recently.
Is the recent decline of CGC stock price a great buying opportunity or is the market sending a warning sign to the owners of Canopy Growth stock?
In mid-April, CGC stock price rallied on several positive notes. First, Bank of America’s analysts slapped a buy rating on Canopy Growth stock with a $52 price target. Later that day, reports began circulating that Canopy Growth may be working on a deal with Acreage Holdings (OTCMKTS:ACRGF). Such an agreement would give Canopy another foothold in the U.S. market. Remember, Constellation Brands (NYSE:STZ) is one of the major owners of CGC stock.
A day later when the reports were confirmed, CGC stock price really started to fly. Investors were optimistic about the $3.4 billion Acreage deal. They believe that this is a great opportunity for Canopy, which now has inroads in the U.S. and a business in Canada with plenty of growth.
Even though those catalysts sent CGC stock from $42 in mid-April to $52 by month’s end — a rally of about 25% — those gains have since faded. As volatility has picked up in May, both market-wide and among cannabis stocks after Cronos Group (NASDAQ:CRON), Aurora Cannabis (NYSE:ACB) and other marijuana companies reported their earnings, CGC stock price has had trouble maintaining its bullish momentum.
Canopy Growth stock fell to $43 earlier this week, but it is starting to perk up. The recent rally is connected to Mike Lee, the company’s new CFO. Lee was previously with Constellation Brands, where he served as senior VP and CFO of the wine and spirits division. It’s a good addition and adds more legitimacy to Canopy’s c-suite.
The rally of CGC stock is important, too.
Canopy Growth stock was trading in a long wedge for the first few months of the year. Eventually, its price resolved lower as Canopy Growth stock fell from $44 to sub-$40. However, after letting CGC stock digest the move, it’s now setting up in a promising manner once again.
The stock is in a downward channel now, but it’s looking as if it’s starting to rise above its resistance. I would love to see CGC stock price push through resistance — which it already has to an extent — and clear its major moving averages. That will happen after the stock rises about another $2. With an increase of just$1. 50, Canopy would reclaim its 50-day moving average.
If it can, perhaps it will gather enough momentum to propel itself even higher.
But I’m worried about the choppiness of the market. On a seemingly daily basis, the trade-war rhetoric changes, which sends ripples through the market. While cannabis stocks may not be directly impacted by the trade spat between the U.S. and China, the stock prices are susceptible to increased market-wide volatility. In that sense, this choppiness and risk-off mindset can hurt stocks like CGC and create false breakouts. Beware of that type of action in Canopy Growth stock.
However, if it can gain momentum, a run back to its 2019 highs is certainly possible.
Bottom Line on Canopy Growth
So what’s the bottom line on Canopy Growth stock? Look for a continuation over channel resistance and its 50-day moving average. If the shares rise above this mark, it’s possible that CGC stock will show some positive follow-through. On a decline, bulls will want to see former channel resistance hold up as support now. A break back into the channel increases the odds that CGC will test the 200-day.
CGC is considered the blue-chip leader of cannabis stocks, so if there’s a marijuana stock to bank on, it may very well be Canopy. But remember that this group has a lofty valuation amid its torrent growth. CGC is a speculative holding and susceptible to volatile swings on both directions.