Technical Levels Clearly Defined As Canopy Growth Corp (TSE:WEED) Awaits Key Pivot

Benjamin A. Smith

A key inflection point in Canopy Growth Corp (TSE:WEED) (NYSE:CGC) (FRA:11L1) stock is upcoming. With the stock unable to break its lower-high glass ceiling in the $42.38/share range this morning, the demarcation lines have been drawn. The endgame to this battle should see an actionable and material move upcoming.

To place CGC’s current weakness in context, consider that Canopy Growth has never had seven straight losing sessions in a row—ever. That includes this winter’s ↓12% crash in S&P 500, when short volatility funds and ETFs were taken to the wood chipper. Overall, shares in CGC have cratered an astounding ↓33.62% over the past seven sessions, dragging the whole North American cannabis complex along with it.

Beginning with CGC’s basic chart setup, we see a clear resistance area in the $42.38-42.50 range. Bulls had an opportunity to break bearish momentum on-open today, by establishing a new hourly close above this level. But things didn’t quite turn out that way: traders sold yet another early attempted rally, wiping out the modest ↑3.21% opening gap within the first 15 minutes of trade. To the downside, the developing range low has not been tested yet ($36.62), but stands out like a sore thumb in isolation.

While nothing in the chart signals a directional change in price, we believe we’re finally at a point where risk/reward and price action is favoring long-side investors.

Consider the potential landing spots of both bull and bear breaks. To the upside, there isn’t any obvious resistance on the hourly until the $47.83 area—should the $42.38-42.50 resistance zone give way on above trend volume. That represents a potential ↑12.50% upside move (+/- a couple of percentage points), should Canopy Growth provide that robust bounce most believe are coming.

The downside potential, however, doesn’t look as enticing. If $36.62 falls on above trend volume, the next logical downside extension, in my estimation, would be anywhere from $33.00-34.16/share. That represents a potential↓6.70-10.00% near-term bounty for bearish investors.

But getting there might be somewhat of a challenge. Aggregate volume on CGC chimed-in today at 12.45 million shares—less than half the volume count of the previous two sessions. This is even more significant since the broad market experienced a mini-capitulation, with the Dow Jones Industrial Average losing 608.14 points and NASDAQ buckling 329.14. Canopy Growth was sold, but not the voracious degree it could have been.

While it’s certainly possible another round of heavy selling could ensue, bears will must cut through a considerable cadre of investors looking to purchase CGC at Constellation Brands direct-equity stake price. Canopy Growth closed at $37.76/share, or C$49.17 when current USD/CAD exchange rates are factored in. On August 15th, Constellation Brands announced they were acquiring new shares in Canopy Growth at a price of C$48.60 per share—a 37.9 percent premium to Canopy’s 5-day volume weighted average price of the common shares on the Toronto Stock Exchange.

While this price is, essentially, an artificial construct of what a third-party decided to pay for Canopy Growth two-plus months ago, it’s surely a prominent psychological level surely given weight by market participants.

Final Thoughts

In the end, any good trade and investment stake—in the short term—is a by-product of probabilities. Given how far Canopy Growth has descended, the rapidly-receding volume profile, Constellation Brands quasi purchase price “put”, and the immediate downside/upside risk-reward profile, we believe the probabilities favor CGC basing at these prices. While it remains to be seen what actually happens, the stock maintains very clear levels even the novice investor can understand.

All eyes will be on $36.62 (downside) and $42.38-42.50 (upside) in the coming sessions. Everything in-between is essentially a tightening range at this point; or as traders like to say, “noise”. Position accordingly.

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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