If seeing is believing, then waiting for Canopy Growth (NYSE:CGC) to report earnings before acting on CGC stock — either bullishly or bearishly — makes the most sense. This is is especially true when you consider what’s going on CGC’s stock chart as well as the basic fundamentals that support it. Let me explain.
Earnings are on tap for Canada’s largest cannabis play. And be warned, Wednesday night’s report should prove to be a pivotal one for CGC stock bulls and bears. But in front of the event, investors would simply be rolling the dice.
CGC’s upcoming Q1 release follows last week’s bullish profit surprise from Aphria (NYSE:APHA). It also comes after an equally surprising, well-received bid in CTST stock despite a whiff of financial trickery at Canntrust Holdings (NYSE:CTST). Throw in a Street whose appetite for cannabis stocks has waned in recent months and the stage is set for a make-or-break type event in Canopy Growth stock.
As for the report, CGC investors will be keying in on the company’s strategy to grow its brand and ability to deliver profitability sooner rather than later. This is all the more important following the surprise ousting of co-CEO Bruce Linton and a decision led by Canopy’s partner Constellation Brands (NYSE:STZ) following last quarter’s disappointing quarterly results.
Bulls and bears alike will be weighing in on kilogram sales for recreational and medical cannabis products, as well as the revenue breakdown of low-margin dried goods versus higher margin, value-added products to confirm Canopy is in fact moving in the right direction. Updates on the regulatory front and legalization of Canada’s edibles and beverage markets and Canopy’s progress within these areas will also be closely watched.
Finally, all eyes should be directed towards Canopy Growth stock’s price chart, which is also interpreted as being at a make-or-break point for either bulls or bears.
CGC Stock Weekly Chart
I have been a critic of CGC in recent months. My bearishness was tied to a bit too much enthusiasm over Canopy’s “too big to fail” market position and a volatile price chart failing to match that optimism. And being positioned short CGC stock has definitively been an overall profitable trade. Now though, I’m less confident.
A reassessment of CGC’s price chart and focus on the weekly view has turned my attention to Canopy Growth’s test of a long-standing trendline and 50% retracement level dating back to the 2017 low, which followed an initial whetting of investors’ appetites for CGC. This is key support to be certain and why I see today’s challenge as a make-or-break situation for bears or bulls.
A failure of support should ultimately lead to a challenge of the December low and 62% retracement level near $25 in CGC stock. If a breakdown does occur after earnings, I’d look for counter-trend reactions for shorting shares until a full-fledged test of the lower support area has taken place.
Alternatively, a technical hold of today’s support should be a big positive for CGC. Again though, I’d wait for an earnings-driven bid to confirm a low. This kind of price action should be a strong platform for a longer-lasting bullish change of trend.
The opportunity for bulls is further supported by CGC stock’s oversold weekly stochastics, which also happens to be crossed in a bearish formation. If a bid in Canopy Growth prevails, today’s mixed signals should result in plenty of room for this secondary indicator to begin supporting a profitable and sustained move higher.
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 options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.