In the November 22 trading session, shares of Canopy Growth Corporation (CGC) closed at $18.41, falling 9.27% from the previous trading session. This downside movement was driven by the big Constellation Brands (STZ) announcement, according to which STZ doesn’t plan to make additional cash inflows to Canopy. This drop lagged behind The Horizons Marijuana Life Sciences Index ETF’s (HMLSF) loss of 6.41%. Meanwhile, the ETFMG Alternative Harvest ETF (MJ) fell 5.54%, and the Horizons U.S. Marijuana Index ETF plunged 6.54%.
Also, Canopy Growth’s stock price has been under pressure since the company reported disappointing quarterly earnings results. It missed both EPS and revenue estimates—by 0.73 and 29.1 million Canadian dollars, respectively.
But despite this setback, the stock has seen strong bullish momentum over the past week. It’s up approximately 35% from its lows. So, in this article, I’ll take a look at Canopy Growth’s technicals to see if the stock price currently represents an attractive entry level. Moreover, I’m taking a closer look at the recent options activity to estimate market sentiment for CGC stock—and see how much higher it could rise in the coming weeks.
Canopy Growth technical analysis
To paint you a clearer picture of the plausible price action, I’ll turn to CGC’s daily chart. Currently, the stock is floating around $18, near the stock’s middle Bollinger Band line. Looking at the technical support and resistance levels, I think the downside stock movement is somewhat limited at the current levels as the equity approaches a technical support level at $17.8.
In contrast, the stock could continue to rise toward the price level of $21.80, which is its nearest resistance. If this move plays out and $21.80 is breaking out, then $22.50–$23.00 comes into focus as a medium-term target.
One notable item for Canopy Growth’s technicals is that its RSI index value of 47.13 is under the MFI value of 50.57. And this difference means that, in the near term, Canopy stock could rise further.
Why options traders are looking bullish
Some options traders are betting that CGC will keep on rising over the coming weeks and months. Over the past several days, there was a purchase of 2,460 $22.50 January 17 call options for $0.77 per contract. Plus, this purchase brings the total number of open contracts to about 7,592. And this total means that the bet has a dollar value of $0.5 million altogether, positioning the transaction as a moderate bullish bet.
At closing, Canopy Growth stock was priced at $18.41. That price means that, if the stock were able to reach its strike price, it would have an upside potential of about 27% from the current levels. If an options buyer were planning to hold the options all the way to expiration, the price they’d need to break even would stand at $23.27, excluding the cost and commissions.
Another important element of our Canopy Growth technical analysis is the open interest levels for $25.00 calls on December 20. This number almost doubled during Friday’s trading session. And, according to barchart.com, the open contracts rose by 1,784 contracts to about 6,727. These contracts traded for around $0.26 per contract as of Friday, November 22. So what does this all mean? A buyer of the calls would need Canopy Growth stock to increase up to $25.26 by the expiration date in order to profit. That level would mean a gain of about 37% from CGC’s current price.
Finally, in the Friday 22 trading session, the open interest for the $22.00 calls that expire on November 29 rose by 1,209 contracts to a total of 1,388 open contracts. For a buyer of those calls to earn a profit, CGC stock would need to rise to $22.11 by the expiration date. This increase would mean a gain of about 20% versus the current stock price.
Looking for more cannabis-industry news and analysis? Please see Acreage: Analysts Lower Targets after Q3 Earnings. Also, check out Do New Jersey Voters Want Marijuana Legalized in 2020?