Chart of the week: Fuel for further gains here

by John Burford from interactive investor |

Now that this November tip has come good, our chartist sets a new price target.

Canopy Growth follows my roadmap from November

I last covered Canopy Growth (TSE:WEED) in my COTW of 11th November 2019, where I laid out my distinctly bullish case. Then, these US and Canadian marijuana companies were experiencing typically difficult phases where the initial over-the-top enthusiasm for this freshly legalised sector hit reality. There were supply problems and the bears pounced.

Perhaps the fund managers who initially jumped in with both feet were influenced by their student recollections of having indulged (but not inhaled, of course).

In any case, the shares were being massacred – but I spotted a low risk/high probability opportunity. This was the chart I posted in November:

Source: interactive investor  Past performance is not a guide to future performance

I had counted a full five waves down set between my lovely blue tramlines, that presented a textbook setup when combined with the large momentum divergence at my wave 5 of C low. Odds were looking good that the market would jump up above the upper tramline, which would then become a line of support. This is the current picture:

Source: interactive investor  Past performance is not a guide to future performance

There was one more dip to the 20 November low at $14! But did that spoil my bullish outlook? At that low, the momentum divergence was still intact and the wave 5 of C low was likely in that new spot. I had no need to abandon my stance – provided the upper tramline could be swiftly penetrated.

A few days later, the new uptrend was confirmed and I had my major low in place, despite the recent negative company news.

This what I wrote in November:

“And the Drake news on Friday helped push the market above my upper tramline in what should be the start of a bull phase with my first target around the $20 region with higher potential thereafter. With short interest still very high, I believe odds strongly favour further advances.”

My first $20 target has been achieved and now it is advancing towards my next target at the $29-$30 region. The high short interest should provide the fuel.

And for comparison, here is another large-cap ‘pot stock’, Tilray (NASDAQ:TLRY):

Source: interactive investor  Past performance is not a guide to future performance

From the manic $300 high in September 2018 to the very recent $15 low – a loss of 95% and a very painful experience – imagine if you had put the shares away in the back of your drawer and only now checked the price with your broker. Ouch!!

But with both, we have a classic Buy Low/Sell High setup.

For more information about Tramline Traders, or to take a three-week free trial, go to  www.tramlinetraders.com

John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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