U.S. Markets open in 31 mins

PreMarket Prep Stock Of The Day: Canopy Growth

Joel Elconin

Benzinga's PreMarket Prep airs every morning from 8-9:00 a.m. EST. During that fast-paced highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to a recording, Benzinga will highlight a stock of the day that was featured on the show.

Stock Of The Day: Canopy Growth

Every stock needs a catalyst to make a move higher and the most powerful catalyst by far is the results of its earnings reports. If an issue is in a prolonged uptrend, an earnings beat can propel the issue to higher and higher prices. If an issue is in a prolonged downtrend, an earnings beat may provide a catalyst to reverse that trend.

A great example of the latter is the third-quarter results from Canopy Growth (NYSE: CGC) announced before the open. The company posted an EPS beat of CA3 cents year over year and a sales beat CA$40.71 million year over year.

Pre-Market Trading Action

The primary purpose of Benzinga's PreMarket Prep Show is to interpret the price action in the after-hours (4:00 PM-8:00 p.m. EST) and pre-market (4:00 AM-9:30 a.m. EST) sessions instigated by breaking news such as earnings reports. On many occasions, this price action can be a great indication of the price action for an issue in the upcoming regular hours session (9:30 AM-4:00 p.m. EST).

Longer Term Perspective

Since peaking in October 2018 at $59.25 during the pot-stock bubble, the issue has been a horrible performer, especially when looking at the issue on a relative performance basis versus the broad market.

The swoon off that high did not end until Nov. 19 when it finally bottomed at $13.98 and ended the session at $15.32. It should be noted the catalyst to propel the issue to $17.64 the following day and $20.29 two days later was a timely ratings change from Bank Of America.

Will Overhead Supply To 'Sell' Play A Role?

During its prolonged slide from its all-time high, there were buyers all the way down with some looking for a bounce for an intermediate-term trade and others banking on the whole enchilada with the issue returning to and making a new all-time high. Many of those buyers were so convinced the issue would rebound that they did not give proper consideration to their downside exposure.

Reading The Tea Leaves

While the issue was being covered on the show, it was firmly in the green and trading just under $24. In anticipation of overhead supply playing a significant role in Friday's session, the author of this article turned to the daily charts for potential areas of resistance.

Based on the daily charts, $24 was mentioned as the first level of resistance since it coincided with its Jan. 30 high of $23.96. Also, banking on investors that witnessed the issue cratering to $18.65 only eight sessions later, investors in the issue were encouraged to use that level as a potential area to exit.

After a higher open, the issue continued in that direction but quickly peaked at $23.90 and sharply reversed course. As of 11:00 a.m. EST, the issue fell to $21.92 and is attempting to rebound.

See more from Benzinga

© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.