Why Sundial Growers Shorts Are About To Go Up In Smoke

On Thursday evening, Benzinga Pro asked its followers on Twitter Inc TWTR what they were buying at the open on Friday. From the replies, Benzinga selected one ticker for technical analysis.

@captain_gsb_179 and @Dirkdiggler7241 are buying Sundial Growers Inc SNDL.

On Thursday, stocks in the cannabis sector were on fire after a report surfaced indicating the U.S. House Rules Committee has scheduled a meeting for Monday in preparation to bring the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act to the floor for a vote.

The news brought back to life the withered cannabis sector, which has been in a mostly years-long downtrend with the exception of the occasional short squeeze.

Sundial, a short squeeze target a few times in 2021, shot up 23% on the news and in the premarket on Friday, the stock was soaring an additional 15% higher.

The Alberta-based cannabis company has a fairly high amount of short interest with 228.89 million, meaning 11.11%, of its 2.06 billion float is held short.

See Also: Why Sundial Shares Are Trading Higher After Hours

The Sundial Chart: On March 14 and March 15, Sundial printed a bullish double bottom pattern at the 45-cent level and over the following seven trading days, the stock has soared up 65%. Sundial has not confirmed it’s trading in an uptrend, because the stock has not yet printed a higher low.

Eventually, the stock will need to pull back to print the higher low because it is becoming over-extended. Bullish traders who are not already in a position could watch for a reversal candlestick, such as a hammer or doji, to form on the pullback for a solid entry.

Sundial’s relative strength index (RSI), indicates that pullback may come over the next few trading days because the oscillator is measuring in at about 78%. When the RSI reaches or exceeds the 70% level, it becomes overbought, which can be a sell signal for technical traders.

The move higher on Thursday came on massive volume, with over 352 million shares exchanging hands compared to the 10-day average of 87.45 million. Higher-than-average volume indicates there is a high amount of trader and investor interest.

Sundial is trading above the eight-day and 21-day exponential moving averages (EMAs), with the eight-day EMA trending above the 21-day, both of which are bullish indicators. On Thursday, the stock gained support at the 200-day simple moving average (SMA), which indicates long-term sentiment has turned bullish. If the stock is able to hold above the 200-day SMA for a period time, the 50-day SMA will cross above it, which will cause a golden cross to occur.

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• Bulls want to see sustained big bullish volume hold the stock above the 200-day SMA and then for eventual consolidation to allow the RSI to cool off. Sundial has resistance above at 78 cents and the 84-cent marks.
• Bears can look for a short-term trade when a volume climax takes place, indicating the bulls have become exhausted and have begun to take profits. There is support below at 72 cents and the 64-cent levels.

Photo by Giorgio Trovato on Unsplash