The technical consolidation reflects the company’s fundamental risk-reward picture — attractive growth balanced by increasing expenses growth and dilution. Revenue, although inorganic, has grown 2X-3X form a low base over the last calendar year; and the large increases in its inventory, as stated in its December 31, 2017 financial report, provides a glimpse of things to come.
Canopy is not only penetrating the burgeoning Canadian medical cannabis markets but is also looking to setup subsidiaries in Europe, Latin America and the Caribbean.
However, this growth and expansion has come at a cost. Excluding the fair value changes and unrealized gains/losses that impact cost of goods sold over the last couple of years, adjusted gross margins have narrowed, prompting questions about operating leverage.
Can the benefits from scale and operational efficiencies offset potential price erosion as competition picks up? Also, with R&D and SG&A growing almost as fast as sales, the losses continue, leaving investors with few valuation choices that appear either lofty or risky.
Let’s get into the technical details:
The symmetrical triangle formation is rather obvious. This pattern traditionally marks a period of consolidation, one that indicates a neutral state, perhaps anticipating a breakout (to the upside or downside) as the consolidation range gets increasingly smaller.
Breakouts supported by high volume tend to be more reliable, as such events may be fundamentally-triggered.
Figures 1 and 2 mark the rising support points of the triangle. It’s important to look beyond the immediate pattern, however, and take into account that Canopy’s price is currently exhibiting a longer-term uptrend.
Figures 3 and 4 mark the line of resistance; the top plane of the triangle. However, it’s important to consider figure 5 which indicates tremendous selling pressure. Note that following this massive downward push, the following day’s buying volume was much higher than the previous day, although the effect of that bullish volume was much smaller.
Figure 6 marks Canopy’s current market price; a period of consolidation whose trading volume (figure 7) has been steadily decreasing.
The risk of loss in the trading of stocks, options, futures, foreign exchanges, foreign equities, and bonds can be substantial and is not suitable for all investors. Trading on margin or the use of leverage is not suitable for all investors and losses exceeding your initial deposit is possible. Supporting documentation is available upon request. Trading futures, options on futures, and foreign exchanges involves substantial risk of loss and is not suitable for all investors. Carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources and only risk capital should be used. Opinions, market data, and recommendations are subject to change at any time. The lower the margin used the higher the leverage and therefore increases your risk. Past performance is not necessarily indicative of future results.