In writing extensively about trading Canopy Growth (NYSE:CGC) stock, I’ve done so mostly with a short-term perspective. The active investors are busy taking advantage of the active price action. Long-term, the story on Canopy Growth stock is a little more complicated because the sector stocks for cannabis have been under selling pressures for months. But there are always trading opportunities like the current breakout from the recent lows.
The cannabis investor pain is obvious as CGC stock is down 60% from its highs. Aurora Cannabis (NYSE:ACB) and Cronos Group (NASDAQ:CRON), just to name two more pot stocks, are down about 10 more percentage points. But this is not due to the lack of fans. Cannabis investors are dedicated to the stocks they love. But for the time being, the earnings reports are not showing the results that feed the fanfare. This makes stocks like Canopy easy targets for the shorts. They are fighting a slew of difficulties especially that cannabis it not yet federally legal in the US.
But this doesn’t mean that there aren’t opportunities to profit from trading the stocks. The important distinction here is that this is different than investing in Canopy Growth. It is hard for some people to bet against their favorite stocks not even for a few days. But in this case it’s important to set aside feelings and honestly trading the price action and levels in both directions.
Trade Canopy Growth Stock While it Recovers
When it comes to investors in cannabis stocks, there’s a sizable contingent that wants to own the stocks at all costs because they believe in their long-term prospects. The arguments for the success of the sector are aplenty. There are many applications that have yet to blossom, so the current results are a mere fraction of what they will be in the future. This is clearly an ongoing, heated debate as there are also strong opinions on the other side of these arguments. Both extremes are likely wrong and somewhere in the middle lies the truth that only time will tell.
Cannabis applications are indeed vast. There are a few that are already on their way in the medical field and edibles, to name just two. Recreational use should also expand especially if the drinkables take shape. The cosmetic industry is also probably going to have cannabis-infused products over the counter. But all of this can only come after the federal legalization of cannabis occurs in the U.S. at least.
CGC Stock Levels That Matter
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For the short-term, there are many levels to trade. Again, these are opportunities for active traders to profit in the short term. For example, last week as soon as the rally started, there was a clear area of resistance starting at $21.75 per share. This is not to say that CGC stock is not worth that much, but from the prior recent history it was clear that sellers were going to materialize at that level as it was was a prior short-term failure point. Onus is now on the bulls to overcome it and then use it as support before they can build upon the rally. This is how short rallies become sustainable for weeks rather than mere hours.
After a disastrous earnings period, Canopy Growth stock has mounted a 40% rally so far. And if the bulls hold this higher-low trend they can finally breach the short-term resistance that is a dark cloud above current levels. There are several difficult levels above as these are ledges in the price action. The major ones are $24, $26.50, $31 and $32.20. As the price recovers, I expect these to be stopping points for the bulls so they are not likely to slice through them like butter. So these would make good scalp opportunities for the short-term traders.
Canopy Risks are Real
On the downside, the threat for cannabis names like Canopy Growth stock is always a potential trap door much like one that happened around the last release of earnings. It first fell about 20% on its own results, then again another leg lower in sympathy to other sector reports that soon followed. Clearly these stocks are fast movers which highlights the importance of being nimble when trading them. Currently there is support below $20 but it is important for the bulls to hold it so that they can fulfill the upside target of this ongoing breakout to $27 per share. This won’t happen all at once but the progress is what matters.
So depending on investor timing the strategy is completely different from one person to another. Today’s write-up is to point out the short-term opportunities regardless of long-term bias. This is nothing against the company efforts in this venture.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.
