With optimism on the regulatory front, investors have been bidding these names higher in hopes that federal legalization is possible. There also has been momentum in state-by-state legalization.
A tie-up between Aphria (APHA) - Get Report and Tilray (TLRY) - Get Report also woke up the bulls. So did the deal last week between Jazz Pharmaceuticals (JAZZ) - Get Report and GW Pharma (GWPH) - Get Report.
Regardless of the reason, this group has had momentum.
Investors want to know if Canopy Growth can continue higher after it reports earnings on Tuesday before the stock market opens. Let’s have a look at the chart.
Trading Canopy Growth
Canopy Growth fell by more than 50% in the first quarter of 2020. By the fourth quarter, however, shares had taken out the pre-coronavirus highs from earlier in the year.
To do so, Canopy had to break out over the 200-week moving average, which later acted as key support along with the 50-day moving average in December.
Since then, shares have been erupting higher. Riding the 10-day moving average, the stock powered right through the 161.8% extension and continues to consolidate above the two-times range extension.
In short, this move has been very strong. If it can keep going, we need to see Canopy Growth take out the recent high near $45.50. If it can do that, it puts a big area in play.
Specifically, there is massive resistance near $50 from 2018 and 2019, while the 261.8% extension sits up near $53.50. If Canopy can take out $53.50, focus will shift to the all-time high up at $59.25.
On the downside, it would be pretty healthy to see a dip to the 10-day moving average and $40 area. That’s particularly true if bulls step in to buy the dip.
Below this area puts the 161.8% extension back in play, along with the 21-day moving average.
Obviously, the stock has had a big run and it won’t last forever. But the cannabis group has serious momentum and to expect it end without reason would be neglectful of the current trend.
Let’s see how Canopy Growth handles its post-earnings reaction and go from there. A muted or gentle dip would be in bulls’ best interest for the longer term.