Canopy Growth (CGC) shares shot up over 80% last August. The volatility continued over the next several months, forming a series of high wick candles. These candles reflected the stock’s inability to hold new highs. Ultimately it relented and shares pulled back below their 40 week moving average, to where the rally began.
A similar pattern of sharp upside followed by consolidation has formed on the Canopy chart, again, but this time without the high wick consolidation phase. The rally and the current consolidation look like a bullish flag pattern.
Canopy’s flag formation is still maturing but its potential upside is enormous. The target price objective is measured by taking the height of the flagpole, or the January rally range, and adding it to the top of the flag. It projects a $20 upside move to the $70 level which is 40% above its current level.
It is an ambitious projection but with this highly volatile stock anything is possible.
Let’s take a look at the Canopy daily chart.
On this chart the flag (or pennant) portion of the pattern looks like a rising symmetrical triangle. As the stock price has migrated towards the apex, the relative strength index and Chaikin money flow have settled near their center lines. The 50 day moving average has made a “gold” cross above the 200 day average.
Price, as always, is the determining technical factor. A move above the $49 level is a bullish breakout, and it could initiate the sharp move higher in the stock price. If the stock broke below the $42 level it would represent another failure similar to the one last year, and it would imply another downdraft in Canopy’s share price.