Aphria Inc Among First Major LPs To Buckle As Weakness Enters Sector

Benjamin A. Smith
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Aphria Inc (TSE:APH) (OTCMKTS:APHQF) (FRA:10E) became among the first prominent cannabis LPs to crack today. The material price weakness in the Leamington-based cannabis operator is perhaps giving early warning that the recent cannabis sector rally—up ↑83.35% peak-to-trough from August 15th through September 19th—is shifting from consolidation to disintegration. We take a closer look.

Aphria’s decisive price break is something we’ve been expecting. Last Friday, we noted that a significant move could be close at-hand, owing to Aphria’s big spike in short interest and narrowing high/low base support on the hourly time frame. While I believed the odds favored upside extension, in the end, the market has spoken.

In terms of the potential downside break, we noted that an “hourly close below $18.57 would likely trigger more extended downside extension”. That essentially played out today as continuation selling spilled over to start the session, painting $18.05/share before 10:00 am. After a couple attempted recoveries that peaked over the new resistance zone, neither one sustained. Selling was normal and orderly throughout most of the session, until the LOD gave way around 3:00 pm, triggering additional stop loss selling. Here’s how today’s session played out.

On the hourly time frame, Aphria marginally sustained a closing high above $18.57/share. However, there was no follow-through either individually or with the sector, and shares leaked lower as the session dragged on. As mentioned, stop loss selling was triggered once the daily lows were breached.

So what should Aphria investors expect next in the near term? Unfortunately, the technical picture doesn’t look particularly inspiring.

The next significant area of support lies around the $17.20/share area, which I consider the base of the September channel. Although that support was penetrated on September 14th by a brief and dramatic sector sell-off, an hourly close never breached this level. It is here I expect bulls to regroup to fight their next battle. A potential break of $17.20 would open the door to Aphria revisiting the September lows below $16.00/share.

Aphria isn’t the only major LP demonstrating some slippage. Emerald Health Therapeutics, Cronos Group, and Organigram Holdings are already there. Sector leaders Aurora Cannabis and Canopy Growth are still holding higher low patterns, thus remain in technical consolidation. However, the runway is getting short. For the sector to stem the damage, Canopy Growth, in particular, will need to step up once more. The key number here, in my estimation, is $62.02 (WEED), or $48.02 on CGC.

A major silver lining in cannabis sector right now is Tilray Inc., which has showed impressive base building over the past few sessions. It’s currently ascending in a well-structured channel, with clear higher low support while it forges newer channel highs. While Tilray isn’t commanding the same recent influence on the market, continued strength could have a stabilizing effect on the market—especially if Canopy is able to withstand this current bearish impulse.

Final Thoughts

In my opinion, the direction of the cannabis market remains in doubt in the next 13 sessions leading up to legalization. Aphria and a few other mid-major LPs have fallen far enough that price breakdown has been established. However, sector leaders Canopy Growth, Aurora Cannabis and Tilray remain in consolidation or base-building mode, giving mixed signal overall.

For investors looking to stake investments in the market, it’s a tough spot to entertain. Literally, anything can happen here, as we’ve elucidated recently. Keep in mind, the news flow leading up to October 17th might be conducive to erratic and unpredictable price action, as events like a potential Canada Post strike and rumors of LP readiness start making the rounds.

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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