How to Trade Canopy Growth Stock on Breakout

Canopy Growth stock is breaking out after Friday's rally and Tuesday's follow-through. What do the charts say now?
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The cannabis space is rocking and rolling on Tuesday, with many names up notably on the day.

Tilray  (TLRY) - Get Report shares at last check were up about 8%, while Hexo  (HEXO) - Get Report shares were up 12%. But the many analysts consider the leader in the cannabis space in Canopy Growth  (CGC) - Get Report, which is up 3.5%.

The rally comes after a strong session on Friday, in which Canopy Growth climbed 6.4% and closed within pennies of its session high. To see the follow-through on Tuesday — with no trading on Monday due to Memorial Day — is rather bullish.

Now the question becomes: Can Canopy continue its run higher? As the shares push into resistance, they are also making significant bullish developments. Let’s look at the Smith Falls, Ontario, company's very interesting charts.

Trading Canopy Growth Stock

Daily chart of Canopy Growth stock.

Daily chart of Canopy Growth stock.

On Friday, the shares rotated over $18.25, the April high. This monthly rotation helped paved the way for longer-term swing traders. But that doesn’t mean there aren’t obstacles.

On Friday, the fear was the declining 200-day moving average. As you can see on the chart above, that comes into play near $20. 

With the shares closing the session at $19.42, investors worried whether CGC could clear this mark or would ruin the long setup by acting as resistance.

Turns out Canopy Growth stock was able to gap up over this mark, turning from a potential resistance mark to a hopeful support level.

That doesn’t mean we’re off to the races. The 200-week and 50-week moving averages — which aren’t shown on the daily chart above — come into play soon, sitting at $21.93 and $22.37, respectively.

If Canopy Growth stock can rally to these points, it represents a decent short-term move from current levels.

Should they act as resistance, bulls have points of reference to use on the downside for potential support. That includes the 200-day moving average and the $18.25 breakout level.

Conversely, if Canopy Growth stock hurdles this zone with ease, it puts the $24-to-$26 zone in play.

The cannabis sector looked as if it had bottomed back in Q4. But the coronavirus selloff spared nobody — particularly this group. If it’s going to make a comeback, look for Canopy Growth to be one if its leaders.