For his second "Executive Decision" segment on Mad Money Tuesday evening, Jim Cramer spoke with David Klein, the new CEO of Canopy Growth Corp. (CGC) , the Canadian cannabis grower.
Klein said that most consumers don't want a smoking experience, but are open to food and beverage experiences. He also said that 2022 is the year he predicts cannabis will be legalized in a big way.
Let's check and see if stock prices can move in a big way.
In the daily bar chart of CGC, below, we can see a basing pattern playing out from November. Prices have largely moved sideways with increased trading volume. Prices are close to an upside break above the bottoming 200-day moving average line.
The daily On-Balance-Volume (OBV) line made a low in November and then a higher low in March when prices made a lower low. This is a subtle bullish divergence and tilts the odds to the upside.
The Moving Average Convergence Divergence (MACD) oscillator turned bullish at the end of April and could give us a fresh buy signal if prices work higher in the short term.
In the weekly bar chart of CGC, below, we noticed some bullish divergences. Prices have been in a downtrend from the middle of 2018 but they are now positioned for a rally and close above the negatively sloped 40-week moving average line.
The weekly OBV line shows us a bullish divergence as it made a low last October and then made a higher low this March when prices declined with the broad market.
The MACD oscillator also shows us a similar bullish divergence with a higher low in March despite prices making a lower low. Two bullish divergences in this longer time frame suggests we could see some strong gains in the months ahead.
In this daily Point and Figure chart of CGC, below, we can see a potential upside price target in the $39-$40 area.
Bottom-line strategy: I suspect that many states will be strapped for money because of the pandemic shutdown and they will consider legalization as a source of income despite earlier reluctance. With the bullish divergences on the charts above I would trade CGC from the long side risking a close below $12. Add on strength looking for gains to the $40 area.
