Is Canopy Growth a Buy Amid Surge in Cannabis Stocks?

Canopy Growth has surged from its recent lows. However, if market volatility picks up again the stock won't be a flight-to-quality trade.
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Of all the stocks to catch a sharp rally, cannabis stocks have come buzzing back to life. That includes Canopy Growth  (CGC) - Get Report, which is debatably the poster child of the industry.

Investors are beginning to wonder if this group is about to catch fire again and perhaps become a go-to focus in a tape marred by volatility. After all, some recent analyst comments suggest that cannabis sales are doing just fine. That gives the illusion that business is holding steady for this group, while many other industries are struggling.

Steady sales shouldn’t come as a surprise really, with alcohol sales holding strong as well. But will that steady sales stream convert to higher stock prices?

Canopy Growth stock dropped to a new low of $9 earlier this month, blowing through its prior 52-week low at $13.81 from the fourth quarter. The stock has reclaimed that mark, which is promising, but concerns still linger.

Trading Canopy Growth

Daily chart of Canopy Growth stock.

Daily chart of Canopy Growth stock.

In midday trading, Canopy Growth stock was up about 0.4%, which is much better than the 2.5% decline in the S&P 500. While shares are holding up over the fourth-quarter lows near $14, they are struggling with the $16 mark. Now, the stock sits roughly in the middle of that range.

On a decline, see if CGC stock can hold the $14 area. If it can, it puts a rebound up to $16 on the table, with a move over this level triggering a possible rally up to the $18 level. There it will find a prior notable level of support, as well as the 50-day and 100-day moving averages.

If $14 doesn’t hold as support, it puts a break back down to the $10 to $12 area on the table. Canopy Growth stock did a solid job of hammering out a bottom near $9.50. Ideally, bulls will be able to keep the stock above this mark, particularly after such a hearty rally over the past few weeks.

It's also worth pointing out that CGC stock bottomed on March 18th, before the S&P 500 made its low on March 23rd. 

While Canopy Growth stock is moving well for the time being, investors need to be cognizant of the overall market and elevated volatility. I would not look for cannabis stocks like Canopy Growth, Cronos Group  (CRON) - Get Report, Aphria  (APHA) - Get Report, Tilray  (TLRY) - Get Report or another peer to act as a “flight to quality” trade should the markets turn lower again.

As always though, price will be our guide, not predictions. Over $16 bodes well for bulls and below $14 does not.