Whiffs of worrisome headlines and price action continue to permeate the broader market. But for Canopy Growth (NYSE:CGC), the big picture in CGC stock points towards more chill and greener days ahead for investors. Let me explain.
Following weeks of bullish investors successfully beating back a brief, but record-breaking corrective bear, powerful market gains in excess of 35% took it on the chin this past Friday. Led by the NASDAQ Composite’s 3.20% decline, investors sold stocks as the Trump Administration considered imposing fresh tariffs on China.
The hostile trade threat follows a growing investigation into how the novel coronavirus started and accusations of a Chinese government cover-up. Combined with mixed earnings and outlooks from Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN), the risk-off conditions proved no match for Canopy Growth. The stock’s own market-leading return, which topped 100%, was chopped down by 4.63% on the session.
Continued geopolitical saber rattling and word of Warren Buffett’s Berkshire Hathaway (NYSE:BRK.B) dumping its entire stake in American Airlines (NASDAQ:AAL), Delta (NYSE:DAL), United (NASDAQ:UAL), and Southwest (NYSE:LUV) are helping the broader market follow-through on Friday’s tumble. But Monday is proving a different story for Canopy investors.
Company-specific news is putting a bid into shares with the stock up around 3% in Monday’s early going. After the market close on Friday, beverage giant Constellation Brands (NYSE:STZ) exercised almost 19 million warrants valued just under CA$13, or roughly USD $9.25 of Canopy’s NYSE-listed shares.
The transaction is valued at $174 million and represents the latest move by Constellation to increase its stake in Canada’s top cannabis producer. What began in late 2017 as an initial investment of just under 10% has ballooned into the company owing nearly 39% of Canopy Growth’s issued and outstanding common stock.
The exercise of the warrants was accompanied by upbeat remarks from Constellation CEO, who sees the global legalization of cannabis as a long-term opportunity for the company. And given what’s happening away from the headlines and on the price chart, conditions are looking increasingly ripe for bolstering longer-term gains in Canopy Growth stock for today’s investors.
CGC Stock Price Monthly Chart
Source: Charts by TradingView
Since mid-2017 and shortly after Canopy first caught the attention of Wall Street, the stock’s volatile rallies and deeper corrective price plunges have worked to establish a large Fibonacci and pattern-based Gartley pattern. The formation looks like two wings, as illustrated in the provided monthly price chart. No doubt the price development has been to the detriment of many buyers of Canopy over this period. Nevertheless, its completion is also bullish.
Historically, when a Gartley completes at Point D, the odds for a new bullish market cycle are raised. Canopy initially confirmed a buy signal in December. The stock rallied above the high of preceding month’s doji pattern pivot low after Leg CD matched the size of Leg AB, indicating a purchase was in order.
That bottom wasn’t meant to be. But a ‘second chance’ opportunity for shares to make good on the pattern’s promise look increasingly good.
Despite March’s broad-based market correction wreaking havoc on most stocks, as well as its wrath forcing a new low in Canopy stock, the Gartley pattern has retained its symmetrical integrity. As the monthly chart also reveals, the low at Point D has challenged the 1.27% extension level.
With April’s inside candlestick consolidation complete, stochastics oversold, and well-positioned for a bullish crossover, the upside potential is growing. And given Canopy’s volatility, as well as size of this Gartley bottom, it remains our technical interpretation shares could retrace 50% of Leg CD to challenge the $30 – $31 level and double in share price by years end.
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.
