What Does The Long-Term Trend Say?
- The chart above presents a Bearish Head and Shoulders pattern which recently breached long-term support at current levels.
- Long-term suggests down-trend is still in tact
- As shown with the pink arrow, volume has decreased exponentially
- Break of current support could send to $33-$34
- Is the Canopy losing steam? — Let’s take a look at short-term time frame below.
I am showing you both charts because in order to conceptualize the short-term trend, you should first understand how the long-term works.
Canopy’s short term opportunity is very much like the long-term technical setup– at pivotal point, that will decide this stocks direction. I have labelled two levels of support for investors to keep an eye on. The green line (Support level #1) has acted as a key level of support for the Canadian cannabis giant. To learn more about support levels and stop losses, check out my video.
- Support level # 1 is 50% retracement from April 29th high’s.
- level # 1 is also the neck line to the head and shoulders pattern shown in the long-term chart.
- Directional Movement oscillator (ADX) suggests bears have control.
- ADX measures trend strength and which trend has control (Bullish or Bearish)
- In this case, ADX measures above “trending” with bearish momentum.
- If CGC gets a bounce at these levels, I will be looking for close above $43 before any hoorahs (marking start of potential new uptrend).
- If CGC trends below support level # 1and follows volume deterioration, we can make fair assumption that the next level to hold is again, the $33 range. Just like long-term chart suggests.
**Technical takeaways— Investors should watch these current levels very carefully. This could be the start of the cannabis bubble popping, or one of the greatest adding opportunities for the cannabis industry.
Is Canopy Growth A Buy?
Recently, shareholders of both Canopy Growth (NYSE: CGC) and Acreage Holdings approved the combination of the two cannabis companies. The Canopy Shareholder Resolution was approved by approximately 99.05% of votes, propelling Canopy up 4.4% in the trading session from optimism. According to the press release from CGC, Acreage shareholders will receive an immediate total payment of $300 million and upon the occurrence of Federal permission of cannabis in the U.S., Acreage shareholders will receive 0.5818 of Canopy shares for every Acreage share held. Read more about the deal here.
“On behalf of Canopy Growth, I thank the shareholders of both companies for their vote of confidence in this historic transaction. . . Completion of the transaction is intended to position us to efficiently and effectively enter the US cannabis market once federally permissible. Alongside our international market strategies and US Hemp strategy, we believe the acquisition of Acreage will be a key step in bolstering our position as a truly global company.” — Bruce Linton, Chairman & Co-CEO, Canopy Growth.
When Will The Deal Take Place
Canopy Growth and Acreage expect the transaction to be implemented on or about June 27, 2019. Completion of the Transaction is contingent on the occurrence of waiver, at Canopy Growth’s discretion, of changes in US federal law to permit the general cultivation, distribution, and possession of cannabis or to remove the regulation of such activities from the federal Laws in the United States.
This bolds well for Canopy’s expansion into the United States, especially since the two companies have ties to both U.S. and Canadian governments. Although the legal issues with investing in a federally banned drug are obvious, investors have every reason to be interested in what could be one of the fastest-growing markets in a few years.
Why Investor Skepticism
Despite this sectors growth potential, the risks related to investing in marijuana are too problematic for many investors. In terms of the legal issues, though recreational marijuana is legal in several states, it is still illegal federally, and the stock market is concerned about following federal regulations. Investors won’t get arrested for buying stock in a marijuana companies. But the federal ban on marijuana poses a huge problem for the industry and potential investors. Although there is every reason to assume that the march for legalization will continue, investors should keep in mind there is no guarantee that will happen. Find out why it is too problematic.
Disclosure: I do not own any position in CGC or Acreage Holdings. This is not a note to buy or sell. Please do your own due diligence before investing.