Tilray Inc TLRY slipped to a new 52-week low on Thursday as the stock continued in a consistent 16-month downtrend that began in February 2021.
Tilray is also trading in a downtrend on the daily chart, which began on May 17, when the stock topped out at $5.15 following a brief bullish rally.
A downtrend occurs when a stock consistently makes a series of lower lows and lower highs on the chart.
The lower lows indicate the bears are in control while the intermittent lower highs indicate consolidation periods.
Traders can use moving averages to help identify a downtrend with descending lower timeframe moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term downtrend and descending longer-term moving averages (such as the 200-day simple moving average) indicating a long-term downtrend.
A stock often signals when the lower low is in by printing a reversal candlestick such as a doji, bullish engulfing or hammer candlestick. Likewise, the lower high could be signaled when a doji, gravestone or dragonfly candlestick is printed. Moreover, the lower lows and lower highs often take place at resistance and support levels.
In a downtrend the "trend is your friend" until it’s not and there are ways for both bullish and bearish traders to participate in the stock:
- Bearish traders who are already holding a position in a stock can feel confident the downtrend will continue unless the stock makes a higher high. Traders looking to take a position in a stock trading in a downtrend can usually find the safest entry on the lower high.
- Bullish traders can enter the trade on the lower low and exit on the lower high. These traders can also enter when the downtrend breaks and the stock makes a higher high indicating a reversal into an uptrend may be in the cards.
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The Tilray Chart: Tilray’s most recent lower high within its downtrend was printed at $4.75 on May 26 and the most recent confirmed lower low was formed at the $4.24 mark on May 24. On Thursday, the downtrend showed little chance of reversing and the bears look to be securely in control.
- If Tilray closes the trading session near its low-of-day price, the stock will print a bearish kicker candlestick, which could indicate lower prices will come again on Friday. If the stock is able to close up above the $3.75 level, Tilray will print a hammer candlestick, which could indicate the next lower low is in place and the stock will rebound on Friday.
- The eight-day exponential moving average (EMA) has been acting as heavy resistance and guiding the stock lower since May 20. The eight-day EMA and the 21-day EMA are also curling further downwards, which indicates lower prices are the most likely scenario.
- The bounce may come if Tilray enters into oversold territory when its relative strength index (RSI) drops to the 30% level. When Tilray’s RSI reached 28% on May 11, the stock rallied 32% over the three trading days that followed.
- Tilray has resistance above at $4.24 and $4.71 and the only support below in terms of price history is at the all-time low of $2.43.
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