The marijuana stocks sector is hands down the hottest stock sector at the moment, and the gains I have seen in the last few weeks alone are reminiscent of the parabolic moves I witnessed at the peak of the dot-com bubble in 2000.
That era ended in tears, so it is never wise to get too comfortable when stocks are making parabolic moves.
I am focusing on OrganiGram Holdings Inc (CVE: OGI), (OTCMKTS: OGRMF) stock in order to outline the developments currently supporting its move toward higher OGRMF stock prices. These developments are all technical in nature, and as long as these technical developments remain in bullish alignment, I can only assume that the predominant trend toward higher OrganiGram stock prices is still intact.
I am particularly enamored with OrganiGram stock because the price action has been very constructive in nature. This constructive price action is highlighted on the following stock chart.
Chart courtesy of StockCharts.com
This OGRMF stock chart has been annotated in order to highlight the wave structure responsible for constructive price action.
Constructive price action consists of two distinct waves: a consolidation wave and an impulse wave.
The impulse waves are highlighted in green and they are advancing in nature. Impulse waves capture the stage in a bullish trend where a stock makes a brief but sustained move toward higher prices.
The consolidation waves are highlighted in purple and they are corrective in nature. Consolidation waves capture the stage in a bullish trend where the stock refrains from advancing and instead corrects. This corrective price action is necessary to alleviate any overbought conditions in order to set the stage for an impulse wave to follow.
These waves work together in tandem, in an alternating fashion, to create and sustain a bullish trend.
On September 21, 2017, I outlined in a publication titled “Organigram Stock Breaks Out, Higher Prices Anticipated” that the pattern that characterized the consolidation wave was complete and that higher prices were likely to follow. Since that date, OrganiGram stock has appreciated to the tune of 86.38%.
As long as the price action remains constructive, I can only assume that a bull market is still in development, but once this impulse wave runs its course, a corrective consolidation wave will have its day in the sun.
I am watching the indications on the following stock chart, which I believe will confirm the notion that a corrective consolidation wave is in development.
Chart courtesy of StockCharts.com
The indicator I am watching on this OrganiGram stock chart, which will suggest that a consolidation wave is in development, is located in the lower panel.
It is the moving average convergence/divergence (MACD) indicator. MACD is a momentum indicator that determines whether bullish or bearish momentum is influencing the price action in a stock. This information is pertinent because a stock cannot make a sustained move in either direction without the applicable momentum.
For instance, in December 2016, a bearish MACD cross was generated, suggesting that bearish momentum was pressuring the price action in OGRMF stock. This indication correctly confirmed that a consolidation wave was in development.
In September 2017, a bullish MACD cross was generated, and this indication correctly suggested that an impulse wave was being supported by bullish momentum. As a result, higher OrganiGram stock prices prevailed.
I believe that a bearish MACD cross will confirm the notion that a consolidation wave is in development.
Due to the lagging nature of the MACD indicator, I have also added a level of support that resides along the previous all-time high. If the OrganiGram stock price falls below this level on a sustained basis, I will also have the inclination to believe that a corrective consolidation wave is in development.
Given the recent run in marijuana stocks, I have become concerned that a substantial correction is set to take place. I have outlined a number of indications on the stock chart I am currently watching that will suggest that a correction in OGRMF stock is set to take place. Corrections are a healthy part of a sustainable trend, and as long as the price action remains constructive, I have no reason to believe that the predominant bullish trend has run its course.