RE:MIDAS LETTER.
the Most Watched Technical Pattern In Cannabis Investing Today BENJAMIN A. SMITH|53 MINS AGO ForCanopy Growth Corp(TSE:WEED) (OTCMKTS:TWMJF) (FRA:11L1)and the rest of the cannabis sector by associationthe time is drawing near. The undisputed industry leader is currently forming perhaps the most widely followed technical pattern in cannabis investing today. Its ultimate outcome will decide whether the next great pre-legalization rally arrives as anticipated, orwhether investors were barking up the wrong tree. The great formation, as I like to call it, takes shape as a well-defined symmetrical triangle (ST) formation on the daily chart. Essentially, the ST consolidates in meandering fashion within the pattern by making a series of lower-highs and higher-lows until an apex is reached. Once that point hits, explosive price action is often encountered in direct proportion to the underlying volume it receives. Higher volume is usually associated with greater upside/downside price extension. Without further ado, heres how Canopy Growth is presentlyshaping up on the daily chart: As we can see, this isnt your typical garden-variety technical setup. Theres almost five months of narrowing consolidation action on heavy volume. The average 3-month volume in Canopy Growth is around 5.7 million shares traded, which ranks it among the TSXs most active issues. Judged in a market capitalization context, Canopys volume profile is even more impressive. In early April, media outletsreported thatCanopy was thefourth most-traded stock by valueon the S&P/TSX Composite Index in the first quarteronly the three biggest banks posted higher dollar volume. Perhaps more significantly, there hasnt been a monumental drop-off in volume since Canopy made new highsin January. Naturally, theres been some degradation; but not the 70-percent plus volume typically seen in stocks where investor focus has moved elsewhere. It appears from the consistent and still-elevated volume profile that investor interest in Canopy Growth remains significantly elevated.Thus, investors should expect the thrust behind the great formation apex to break with proportional strength,as copious amounts of sideline retail/institutional money start entering the fray. Furthermore, volume is getting to the point where we believe a great formation resolution is coming. Not only is the ST squeezing to a point whereresolution must take place, volume is grindingto anemic levels. Prices are simply running out of resistance-free space in which to flow. For example, only1,781,300 shares were traded in Canopy Growth today ($0.01 to $27.24/share), almost 70-percent lower than its 3-month median average. In fact, this was the first sub-2 million share session since December 14, 2017just one week before Canopy Growth ultimately exploded 130% higher. One way or another, Canopy is on the verge of a big move higher. Canopys Other Symmetrical Triangle In its short history, Canopy Growth has experienced another distinct, apples-to-applesST formation.This instance occurred at the heights of Canopys first great bull run between November 2016-January 2017. Contrary to todays reality, symmetrical triangle #1 had some key differences limiting its ultimate move forward. For starters, trail-off volume erosionwas significant higher as a percentage of peak volume. Aggregate volume was barely breaking 1 million shares/day by the time the formation was completely formed. This ST iteration was also smaller and shallower than we see today. As well, cannabis legalization was only in the conception phase at that point in the cycle. It wasnt untilApril 13, 2017 when the Liberal government officially tabled theCannabis Act,(otherwise known as Bill C-45). We suspect theres less investor trail-off today as cannabis legalization is much closer to actualization. With that said, Canopy Growth still moved approximately 40% higher, peak-to-trough, before sellers took control. Although the move was significant, perhaps all the pieces werent aligned for a substantial move higher due to the cannabis sectors position in the investment cycle. Still, if thats a base-case scenario of what to expect, investors will gladly take it. Final Thoughts Investors in Canopy Growth are headed for some exciting times. I have no doubt the symmetrical triangleor narrowing consolidation if you preferis coming to a head shortly. Unlike thesimilar ST experienced 18-months ago, Canopy Growth is entrenched in a preferable investmentcycle stage: Canadian legalization has entered the late innings, rapid international expansion has commenced, and U.S./foreign legalization possibilities appear much more imminent. Very rapid sales growth is about to commence. As well,approaching dual-listing on NASDAQmay bring Canopys investment outreach to a whole new level. Lest you believe elevated valuationswill prevent any big move from happening, just remember bitcoin, Amazon.com, or any otherof the myriad of unprofitable tech companies dotting the investor landscape. Its a different industry, but cannabis stocks are still trading on a hyper-future outlook of what could benot on rational price/sales or net income metrics like mature industries trade off of today. For some, not even that matters: Traditional technical analysts lore states that symmetrical triangles break in the direction of the overarching trend 90% of the time. While that may or may not happenthis time, betting against Canopy Growth is a dangerous endeavor. Just like previous early-stage industries with big growth potential, investors should be looking 5-years down the road instead of 6-12 months usually affordedmature industries. The cannabis sector will get there eventually, but in the meantime, taking the long view is the better play here. As such, we like Canopys chances here. The old-timers of technical analysis lore knew what they were talking about