Canopy Growth Corp (TSE:WEED) 50-Day MA Failure Triggers Industry-Wide Selling Event

Benjamin A. Smith
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The last vestiges of cannabis sector strength vanished this afternoon, when investors in Canopy Growth Corp (TSE:WEED) (OTCMKTS:TWMJF) (FRA:11L1) failed to defend its 50-Day moving average. This event triggered a cascade of sell orders, eviscerating hundred of millions of dollars in market capitalization industry-wide. It was perhaps the inevitable climax to a sector were had been slumping lower for several weeks.

Canopy Growth Corp, the world’s largest cannabis company by market cap, and CEO Bruce Linton, are considered the ones to watch in the global marijuana industry. Here he joins James to talk about Canopy’s own global rollout strategy.

The antagonizing event occurred at approximately 1:40pm today. Canopy Growth—which had been under pressure all session—sold to the $30.53 mark (50-day MA) in methodic fashion from the opening bell. Once there, the floodgates opened up. Not only was a bounce not forthcoming, the bid actually collapsed. Sensing blood, the sell-side algos piled-on and sold shares across the whole cannabis sector.

The negative catalyzing event shows up plain-as-day on a simple 5-min candlestick chart. Below, we can see Canopy Growth being walked down in orderly fashion all the way to the ’50’. Once prices overshot and the subsequent re-test failed, volume opened up and downside selling became parabolic. It was a clear sign that retail/institutional money invested in Canopy Growth since its early March ’50’ conquest were heading for the exits.

5-Min Chart

With Canopy Growth giving way, the impetus to stay invested in cannabis stocks evaporated—at least for now. Canopy had been the one counterbalance saving the sector from a greater rout these past few weeks. The stock had displayed persistent relative strength in a sea of price degradation everywhere else. While there were a handful of exceptions—CannaRoyalty (CSE:CRZ) springs to mind—the ongoing weakness has ensnared most everyone in the dragnet. With Canopy Growth capitulating ↓12.56%, or $4.02 to $27.99, they’ve officially entered the bear’s den.

CannTrust Holdings CEO Brad Rogers recently sat down to discuss the reasons why CannTrust remains one of the greatest opportunities for investors in the Cannabis space. CannTrust was one of the few bright spots in the cannabis universe on Wednesday.

Below are a handful of other sector heavyweights playing follow-the-leader. In each case, note the pickup in selling at the same time Canopy Growth gives way. It was a classical sector-wide program selling event.

MedReleaf 

Aurora Cannabis

Aphria

What happens next is up for debate. The market is in an extreme oversold condition, yet, the lows keep on coming.

Perhaps Aphria will give investors a preliminary indication on the sector’s next move, as it the first big cannabis stock to test it’s 200-Day MA in the last several months. While the stock sliced through that level ($10.58) with ease today, the primary support zone rests between $10-10.58/share. A clear move below that level—despite Aphria closing down for 10 consecutive sessions—could give investors an early indication that there’s more selling to come.

Watch Aphria CEO Vec Neufeld outline his company’s international strategy with the acquisition of Nuuvera, which he said it will rename Aphria International

Another key level to watch is Canopy Growth at the $27.66/share. It bounced off this level in late trade, but closed tenuously close to this level. A bearish continuation below this mark tomorrow won’t do the rest of the sector any favors.

Midas Letter will continue to provide-industry leading coverage as events unfold.

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Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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