In the past few months some market commentators have deemed as a "bubble" the cannabis industry and the small cannabis names from Canada that quickly soared on the exchanges. Because financial journalists missed identifying the dot.com era of the late 1990s as a bubble, many since then have rushed to judgment on nearly every market or industry that rallies quickly.
However, the public's interest in cannabis stocks is not a mania and probably is in its early innings, in my opinion. Canopy Growth Corp. (CGC) is one name in this new industry that is poised to rally from current levels. Let's check out its charts and indicators.
In this daily bar chart of CGC, below, we can see an uptrend over the past 12 months. Yes, there have been some quick, sharp rallies, but each low has been higher than the last one. CGC has been testing the rising 200-day moving average line in recent days, but now it looks like it can turn up again. The slope of the shorter 50-day moving average line is pointed down, but a rally above $42 will break the line.
The volume of trading has been heavy since August, but the daily On-Balance-Volume (OBV) line is holding above its October low and the lows of July and August. In the lower panel we can see a bullish divergence. CGC made lower lows from October to November but the price momentum study made a higher low, telling us that momentum slowed. A picture of slowing momentum happens when buyers step in on the way down.
In this weekly bar chart of CGC, below, we can see a ten-fold march up in a short period of time. This is pretty extreme, but in the last three years we can see a number of ten-fold rallies by chip makers and other tech names. Were they bubbles, too? Prices are holding/testing the rising 40-week moving average line. The weekly OBV line has declined the past two months and the MACD oscillator is in a take-profits sell mode.
In this Point and Figure chart of CGC, below, we ignore volume and all the indicators and just focus on price. This chart indicates an upside price target for CGC of $43. Not a new high, but a good start.
Bottom line strategy: Aggressive traders could probe the long side of CGC, risking a close below $30.