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Why Canopy Growth Stock Isn’t Worth Buying Yet

Chris Tyler

There may very well be at least three reasons to not sell Canopy Growth (NYSE:CGC) stock. But  the price chart is warning investors that they shouldn’t buy CGC stock now. Let me explain.

I enjoy reading InvestorPlace contributor Luke Lango’s take on the markets. His analysis personally turned me on to both Shopify (NYSE:SHOP) and Twilio (NYSE:TWLO) long ago when many other traders and financial pundits were warning of their downside risks well before their subsequent, massive, triple-digit-percentage gains. KAAACCHHINGG!

But getting back to Canopy Growth stock, this week Luke wrote that  investors shouldn’t sell Canopy Growth. The first reason he cited was trade-war headwinds being overblown and not really an issue for CGC.  I totally agree with that. Still, that doesn’t make Canopy Growth stock worth buying.

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Luke also wrote that the slowdown in Canada’s cannabis market isn’t actually terribly alarming and discussed the tailwind of the still-untapped U.S. market. Those points are good reasons  to not sell CGC stock, but they fail to make Canopy Growth stock worth buying at the moment.

Now don’t get me wrong. My caution on Canopy Growth stock doesn’t mean that I’m advocating shorting CGC. I’m nowhere near ready to put Canopy Growth stock in the same boat as Tilray (NASDAQ:TLRY) whose fortunes have gone up in smoke over the past several months. However, considering the volatility of the cannabis market and the CGC stock chart, the shares aren’t close to worth buying  if history is any indicator.

CGC Stock’s Daily Chart

The volatile and some might say temperamental behavior of CGC stock has foiled bulls’ attempts to exploit its positive trend using breakout strategies.  That is illustrated by higher and above-average volume buy signals  sent by triangle patterns, a classic  short-handle consolidation and a very recent failed breakout as relative highs were cleared.

But Canopy Growth stock has also been somewhat of an equal opportunity trap for bears too.

The chart of CGC stock depicts a couple of  breakdowns of CGC that were reversed. There was last summer’s out-of-left-field explosive gain on partnership news with beverage giant Constellation Brands (NYSE:STZ). And earlier this spring a bear flag similarly failed after breaking down courtesy of a rally a short while later.

Of course, some bulls might be quick to point out that, during both bearish patterns, CGC did not fall below the support provided by its 200-day simple moving average. That incidentally made CGC stock ripe for buying. That’s true, but there’s always a technical line on the price chart somewhere that drive buy decisions which work out favorably.

The Bottom Line on CGC

In our view, CGC stock’s squiggly price line is a tricky one to trade. And given the shares’ history of volatile failures in the wake of breakdowns and breakouts, today’s pullback pattern isn’t a reason to sell Canopy Growth, but it does not make CGC worth buying just yet.

Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

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