Here’s How to Play a Smoked Aphria Stock

From cool outsized vibrations to getting smoked in a big way, it’s been a heck of a week for Aphria (NASDAQ:APHA). And that’s just through Tuesday. So what might the rest of the week bring APHA stock investors? Let’s review the evidence off and on the price chart, then offer a risk-adjusted position aligned with those findings to avoid stinking up the trading account.

Marijuana plants growing in a greenhouse.

Source: Shutterstock

It seems like only yesterday cannabis stocks were enjoying a cool optimistic tailwind. And in fact the group was awash in green to start the week. From Canada’s largest producer Canopy Growth (NASDAQ:CGC) to smaller marijuana operator Sundial Growers (NASDAQ:SNDL) or U.S.-based Charlotte’s Web Holdings (OTCMKTS:CWBHF), Monday offered an outsized bid for industry players of all kinds. And among those names, APHA was a standout indulging investors with double digit gains.

Behind the enthusiasm for most everything cannabis, embattled NY Governor Andrew Cuomo announced weekend talks with the state’s Assembly majority leader regarding adult recreational marijuana use was “very close” to an agreement. And with indications a vote in the New York state legislature could happen as early as next week, the news proved too much for bullish traders to resist.

What Happens in New York, Stays in New York?

Despite the enthusiasm, legalization of recreational marijuana in New York wouldn’t help any of  Canada’s U.S.-listed cannabis stocks, including APHA. The fact is those companies need a change at the federal level.

So, why’d the group rally? It’s plain and simple. As more and more states do open their doors to this market, the ability for federal legalization grows increasingly likely under a pot-friendly President Joe Biden administration.

But APHA’s stock, which saw shares jump nearly 11% Monday, also enjoyed bullish company-specific news. Investors welcomed an announced special shareholder meeting which puts Aphria one step closer to finalizing a deal with competitor Tilray (NASDAQ:TLRY). Unanimous board support will now give way to a April 14 meeting and a count of TLRY stockholder votes on April 16.

It’s good news for APHA, as the merger will effectively create one of the largest and most diversified cannabis companies in the market. Aphria’s CEO further enabled investors’ enthusiasm by emphasizing the combined company’s commitment to further acquisitions across the industry which are accretive and complementary.

A Cannabis Hangover

While the powerful-sounding news reports sent APHA ripping higher Monday, shares gave back the bulk of those gains Tuesday as the stock backtracked by almost 9% . The good news? I suppose if misery loves company Aphria investors weren’t alone.

Across the board, cannabis stocks got buried. And what was behind the sell-off? The day’s top headline claiming responsibility for the sell-off was the age-old lame duck excuse of investors hating uncertainty, except when climbing a wall of worry. To be fair though and for what little it’s worth, apparently there were a couple conflicting media reports questioning the timeline of New York state’s decision to go green.

APHA Stock Weekly Price Chart

Aphria (APHA) confirmed corrective bottom in place
Source: Charts by TradingView

What will tomorrow bring?  Nobody knows with certainty. But with much-needed tax revenues on the line, Tuesday’s N.Y. state cannabis worries are likely misplaced. Moreover and for APHA stock investors, a pattern-driven buy decision has already been approved by bullish traders this week. And today shares are shaping up as an interesting second chance entry.

As the provided weekly chart reveals, APHA has confirmed a bottoming pattern out of a volatile price correction. A two-week long candlestick consolidation supported by Aphria’s 62% retracement level signaled a bullish reversal Monday to confirm the corrective low.

Another positive feature of this formation is the weekly candlestick entry just narrowly pierces APHA’s former 2017–2018 bubble high of $19.87. With that in mind, the reversal formation is offering investors a bullish breakout. Two bullish patterns for the price of one, right? Lastly and with Aphria shares sporting a neutralized stochastics indicator that’s starting to flatten, a deeper value purchase of this type has even more working in its favor.

My suggestion would be to monitor APHA stock for a future purchase if shares can re-cross the $20.63 level and complemented by a bullish stochastics crossover. If those conditions are met, a slightly out-of-the-money July $22/$30 bull call spread looks interesting given its sufficient time allowance for shares to retrace this past month’s damage, solid profit leverage and excellent protection against larger drawdowns.

On the date of publication, Chris Tyler does not hold, directly or indirectly, any securities mentioned in this article.

Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100%  the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

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