Canopy Growth Stock Is in a 'Traffic Jam' After Earnings

Canopy Growth is slipping after earnings and the stock remains 'stuck' between two major groups of moving averages. Here are the levels to watch.
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Canopy Growth  (CGC) - Get Report was mixed on Tuesday, the first trading day for U.S. stocks this week after the Memorial Day holiday.

Canopy Growth reported earnings on Tuesday before the open, making it a rare focus after the three-day weekend. Shares were down about 4% after the report as investors try to sort out of the results.

Because of the way Canopy reports there seems to be some confusion among investors.

The stock’s premarket gains were short-lived and now the stock is lower despite solid revenue growth and a year-over-year decline in operating losses

MKM analysts were right about the company's improving efficiency

Management also remains focused on capitalizing on the U.S. markets, which should be viewed positively by investors.

For the rest of the group, it’s also a down day. Cronos Group  (CRON) - Get Report, GrowGeneration  (GRWG) - Get Report, Aurora Cannabis  (ACB) - Get Report and others were also lower.

Let’s look at the chart to see if there is an opportunity in Canopy Growth.

Trading Canopy Growth

Daily chart of Canopy Growth stock.

Daily chart of Canopy Growth stock.

Canopy Growth saw an explosive rally earlier in the year, ultimately clearing $55. However, shares then retreated after slipping into a painful downtrend over the last several months.

With last week’s rally and Tuesday’s pullback, the stock is now left in a very congested area.

Above it is the 50-day, 200-day and 200-week moving averages. Just below the current stock price is the 10-day, 21-day and 50-week moving averages.

In between both groups is the $25 mark, which was the breakout level in November and subsequent support until May when Canopy broke down.

So how should investors approach this setup, which is the equivalent of a major traffic jam? Let’s wait for some kind of rotation and confirmation. 

On the upside, that comes on a close above $27.05, which will put Canopy above all of its major moving averages and prior support levels. That also gives bulls a monthly-up rotation over the May high.

That would open the door to $30, then the 21-week moving average currently at $31.40.

On the downside, a close below the 21-day moving average currently near $24 puts that small gap-fill in play near $23. If Canopy fills that gap but doesn’t reclaim its moving averages, it could leave the May low in play at $21.72.

The bottom line is simple: Let’s see if Canopy Growth stock fails to hold its lower group of moving averages and tests down into some lower support levels, or if it clears its upper group of moving averages and gains upside momentum.