The Bull And Bear Case For Canopy Growth's Stock

Canopy Growth Corporation's CGC stock is down 45% from its 30-month high of $56.50 made on Feb. 10. Before Feb. 10 the stock had not traded above $53 since October of 2018 when Canada made the move to legalize and regulate the consumption and sale of recreational cannabis.

Since then, Canopy Growth has been a frustrating stock for marijuana sector bulls. After President Joe Biden was sworn into office, positive sentiment returned to pot stocks. Traders and investors hope the new administration will move quickly to pass federal cannabis reform measures such as the SAFE Banking Act, which is currently before the U.S. Senate.

The Canopy Growth Chart: There is both a bull case and a bear case for Canopy Growth's stock and, while the deciding factor may come through a government policy decision, the chart can give traders and investors an indication of future price action.

Canopy Growth stock has been trading in a bearish descending triangle since Feb. 18, which means it has been making daily lower highs but maintaining a low of around $30.50.

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The Bear Case: Each time Canopy Growth touches the lower horizontal trendline of the triangle, it weakens it, making it more likely it will drop through it. If Canopy Growth drops down below $30.50, volume can be used as an indicator as to whether it will drop further.

Big bear volume, or a large red volume candle, can indicate fear has come into the stock and large positions are being sold. If it breaks down out of the triangle, the stock may bounce with relief back up to the horizontal trendline before making a further downward move. Bears could use a retest and rejection of the horizontal line as an entry to go short.

The Bull Case: Although Canopy Growth's stock is coiling in a technically bearish pattern, there's a chance it could break bullish out of the pattern, up through the sloping line of the triangle. Positive news, or a bullish pattern on a smaller time frame, could push it to break bullish before the price action meets the apex of the triangle mid-month.

If the stock break bull from the triangle, it may come back to test the downward sloping line again, which would give bulls an ideal entry to go long.

CGC Price Action: The stock closed Tuesday's session at $30.90