If misery loves company, then bulls and bears may be in good company in Canopy Growth (NYSE:CGC). Nevertheless, CGC stock remains a short despite shares’ sometimes erratic and temperamental personality and, now, Canopy’s less-winning ways off the price chart. Let me explain.
It has been a month since I penned an unpopular bearish article for InvestorPlace on CGC stock in the face of the then-latest broker approval. Investment house Stifel had issued a buy rating, with analyst W. Andrew Carter hailing shares as the “best investable opportunity” in cannabis.
Since then, CGC stock — Stifel’s single most awesome prospect — has fallen roughly 9%. Worse yet, conditions off and on the price chart look more fragile for bulls after Canopy announced a massive loss of nearly $250 million for its fourth quarter a couple weeks ago and more than three times larger than Street forecasts.
Then late last week, following CGC stock’s unimpressive quarter, Canopy Growth, “terminated” the company’s founder and co-CEO Bruce Linton. That may eventually be good news. But for the time being, and as the company looks for new leadership at the top, the technical case for owning CGC stock continues to weaken for bulls.
CGC Stock Daily Chart
Despite CGC stock moving lower, as anticipated, since last month, it did so without triggering our discussed strategy for shorting shares. The suggested bearish entry underestimated CGC stock’s sometimes-difficult wherewithal on the price chart in relation to its 200-day simple moving average. That effectively quashed the short in its tracks.
Looking forward, while Canopy’s decline thus far is nothing to sneeze at, I continue to view the CGC stock price chart as a bearish opportunity. With the 200-SMA now firmly in the rearview mirror, shares are in a testing position of last month’s corrective low and bullish-looking pre-Fourth of July candle which has failed to make any headway.
Coupled with CGC stock’s weak-looking stochastics setup, I see shares as being in position to be shorted once the July low is broken. Given that day’s massive and spirited price action, a breach should find a whole new wave of investors throwing in the towel.
For protection and given Canopy’s volatility, I’d suggest reduced sizing and use an initial stop 16% above the market. The recommended exit is narrowly above CGC’s post-earnings high and last breach of the 200-day simple moving average. Optimistically, an eventual challenge of the December 2018 low near $25 and second test of CGC stock’s 62% retracement level formed over the past two years is anticipated.
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 options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.