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Shares of Canopy Growth Corporation (CGC) rose more than 8% early Monday as Canada prepared to legalize cannabis for recreational purposes on October 17th. The company also announced the acquisition of the hemp research company ebbu, its cannabidiol, or CBD, and pave the way for cannabis-infused beverages.
Many other cannabis stocks also increased early in the session, including Aurora Cannabis Inc. (ACBFF) and Tilray, Inc. (TLRY). Investors are betting that cannabis companies will be outpacing capacity on October 17, which could result in significantly higher revenues and more reasonable long-term valuations based on growth.
In an interview with the Financial Post earlier this month, Bruce Linton, CEO of Canopy Growth, predicted that there would be "no chance" that licensed cannabis producers would meet the demand of consumers on the first day of legalization. He hypothesized that supply and demand would equalize only in 2019 and 2020, with existing firms increasing production and new businesses approved.
From a technical point of view, the Canopy Growth stock seems ready to come off a symmetrical triangle pattern. The Relative Strength Index (RSI) appears neutral at 61.93, but the Moving Average Convergence Divergence (MACD) could experience a short-term upward cross. These indicators suggest that the stock could have room for maneuver in the event of a break-up.
Traders should look for a definitive break in high volume between the top resistance of the trend line and the previous highs near resistance R1 at 56.60 USD at resistance R2 at 64.56 USD. If the action fails to burst, a drop may be needed to re-test the lower trend line and pivot point support around $ 48.64. There could also be profits on October 17 if traders "sell the news".
Chart provided by StockCharts.com. The author holds no position in the mentioned shares, except through passive managed index funds.
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