Interactive Investor

Chart of the week: I remain bullish on these two shares

After tracking this pair since last year, our technical analyst still sees significant upside potential.

24th February 2020 14:08

John Burford from interactive investor

After tracking this pair since last year, our technical analyst still sees significant upside potential.

Canopy Growth and Tilray – still rising from the ashes?

I last covered Canopy Growth (TSE:WEED) on 20 January, which was a follow-up to my first coverage on 11 November last year when I spotted it as a likely Buy Low/Sell High candidate on good timing.

Of course, almost anyone can look over charts and spot bear trends and proclaim: ‘Yes, I have a Buy Low/Sell High share!’. But unless you have a tried and tested system of separating the wheat from the chaff, you are likely to end up with cut fingers as you had really caught a falling knife!

And catching a falling knife is OK, just so long as you have a stop loss in place as a bandage.

So, did I catch a falling knife here or did I latch on to a good trade? This was the chart I showed last month:

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

I noted that I was a little premature in November to call the low, but it appeared very soon thereafter, and that $18.50 low was the completion of a lovely five-wave pattern. In just a couple of days, the huge momentum divergence propelled the price out of the trading channel to offer a bull signal.

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 20 January note:

“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.”

Here is the updated chart:

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

In fact, my target was reached – and then some - to the $33.50 high from where it has been in consolidation mode.

But note the large gap up ahead in the $40 region, which has now become my main target. Depending on the wave pattern up ahead, I may claim this to be a major top and a place to take profits.

So how is the sister ‘pot stock’ Tilray (NASDAQ:TLRY) performing?

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

It too has a large momentum divergence to the $15 low and thus has fuel to propel it up to my next target around the $30 area.

I remain bullish on these two shares.

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.

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