Canopy Growth Stock Blazes Higher Amid Wild Volatility In Cannabis Sector: The Bull, Bear Case

Canopy Growth Corporation CGC surged about 20% higher at one point Monday, rebounding from a 50% drop between Sept. 15 and Sept. 21 amid increased interest in the cannabis sector after the Department of Health and Human Services recommended marijuana be rescheduled.

From a technical analysis perspective, Monday’s climb higher is the result of a double bottom pattern that was formed at the 76-cent area on Thursday and Friday.

A double bottom pattern is a reversal indicator that shows a stock has dropped to a key support level, rebounded, back-tested the level as support, and is likely to rebound again. It is possible the stock may retest the support level repeatedly, creating a triple bottom or even quadruple bottom pattern.

The formation is always identified after a security has dropped in price and is at the bottom of a downtrend, whereas a bearish double-top pattern is always found in an uptrend. A spike in volume confirms the double bottom pattern was recognized and subsequent increasing volume may indicate the stock will reverse into an uptrend.

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The Canopy Growth Chart: Despite rising on Monday, Canopy Growth remains trading in a downtrend, making a series of lower highs and lower lows. The most recent lower high was formed on Sept. 19 at $1.26 and the most recent lower low was printed on Thursday and Friday at 76 cents, where the double bottom pattern was created.

• On Monday, Canopy Growth attempted to regain the eight-day exponential moving average (EMA) but failed and fell under the area. If Canopy Growth doesn’t regain that area over the next few days, the eight-day EMA will eventually fall toward the 21-day EMA, which could accelerate downside pressure for at least the short term.
• If Canopy Growth retraces on Tuesday, bullish traders want to see the stock form a bullish reversal candlestick, such as a doji or hammer candlestick, above 76 cents, which would negate the downtrend and indicate a new uptrend could be on the horizon.
• Bearish traders want to see big bearish volume come in and drop Canopy Growth under 75 cents, which would negate the double bottom pattern and indicate the downtrend remains intact.
• Canopy Growth has resistance above at $1.02 and at $1.08 and support below at 76 cents and at the 48-cent mark.

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