It’s been a rough few months for cannabis stocks, to say the least. This type of volatility however is to be expected in an emerging growth industry, meaning that I am looking for select buying opportunities when the selling gets severe. To wit, shares of Canopy Growth (NYSE:CGC) have reached an important confluence area of technical support of late and CGC stock is now worth a look again.
Some might ponder the question whether the medical marijuana industry has a real future. Personally I do believe so, yet from a more near-term trading or investing perspective, the question is at what levels any given stock or peer group of stocks offers good enough reward to risk it for a bullish play. To shine some light on the current opportunity I see in CGC stock, I crafted two charts.
On the multi-year weekly chart we see that since the stock topped out in October 2018 (Canada legalized pot in the middle of that month), it has traded in a volatile range. The lower end of this range around the $24 area lines up with an important technical confluence area of support. First, this area has acted as simple horizontal support several times since the summer of 2018. Second, this area also lines up with the 61.80% Fibonacci retracement of the entire rally from the 2017 lows up to the 2018 highs. And thirdly, from a momentum perspective — using the MACD oscillator — we can see the stock is extremely oversold here on the chart with weekly increments.
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On the daily chart we see that the decline since May of this year has largely taken place within a well-defined range (purple parallels). Over the past few weeks CGC stock took another leg lower following the earnings report in August, bringing it not only to the lower end of the trading channel but also to the aforementioned horizontal support area around the $24 mark.
From here, while I personally would like to first see some confirmation buying in the way of a nice bullish up-day, active investors and traders could dabble in the name around $24.50. A next upside target is $27 and a stop loss at $23.
It is important to note however that this stock is of the volatile variety and thus should be sized appropriately, i.e., smaller. Also, in case of a stop-out one could always look to re-enter on the bullish side upon the next strong bullish reversal.
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