ORHOF Stock: Breaking Free From the Pack
Since October 16, marijuana stocks have been caught in a correction. This correction has coincided with legalization in Canada, and the reaction that followed was well anticipated. It has been playing out just as I, and many other analysts, expected.
As I have stated numerous times in a number of publications, a milestone event like legalization is the perfect catalyst to trigger a selling event, especially for those like myself who believe in old adages like “buy on rumor, sell on news.”
Now that a correction is unfolding, we are going to quickly find out that not all marijuana stocks are created equal. The distinction between the good stocks and the bad ones are going to become increasingly apparent.
It actually did not take long for one particular marijuana stock to break from the pack.
The first stock on my watch list, which has gone on to make new highs following legalization, is CannaRoyalty Corp (OTCMKTS:ORHOF, CNSX:OH). If you have been following my work, this name should sound very familiar, except for the fact that it recently changed its ticker symbol. It also recently changed its business name to Origin House.
CannaRoyalty stock has been featured in a number of my publications this year—four, to be exact. The most recent one was published on October 10: “Cannabis Stock: Anticipating Further Gains in CannaRoyalty Stock.”
In that report, I outlined a number of technical indications that not only suggested that higher ORHOF stock prices were on the horizon, but that the bullish move toward higher prices had only reached the halfway point.
The indication suggesting that this stock had only reached a halfway point is highlighted on the following chart.
Chart courtesy of StockCharts.com
The technical indication suggesting that ORHOF stock had only reached a halfway point earlier this year was a completed ascending triangle.
Ascending triangles are technical price patterns that are created when the price action is characterized by a static high that is accompanied by a series of higher lows. Applying trend lines to the peaks and troughs created by this price action is how this price pattern was captured.
These trend lines are important because they pinpoint where significant levels of price support and price resistance reside. For instance, on August 27, ORHOF shares exited the pattern by breaking above price resistance. This action completed the pattern, suggesting that higher prices were likely to follow.
The implications of this breakout were later reaffirmed when CannaRoyalty stock returned to test the previous level of resistance from above. This test is highlighted as a backtest on the chart above, and it served to confirm that the breakout was legitimate, while simultaneously establishing a new level of price support.
Backtests have a habit of acting like a launchpad, which is why, since this one was completed, higher prices have prevailed.
I am focusing on this pattern once again because triangle price patterns are also consolidation patterns that have a habit of marking midpoints in a bullish trend.
Therefore, if I apply this pattern and the price action that preceded it, I can generate a price objective for the move that is currently in development.
A price objective is something that has been missing from my previous publications about CannaRoyalty, and it is why I have returned to focus on ORHOF stock again.
The completed ascending triangle and the price action that preceded it are captured on the following CannaRoyalty stock chart.
Chart courtesy of StockCharts.com
This stock chart has been subdivided into a wave structure consisting of impulse waves and consolidation waves.
Impulse waves define the stage in a bullish trend when a stock makes a move toward higher prices.
Consolidation waves define the stage in a bullish trend when the price of a stock corrects—in order to digest the move that preceded it. Consolidation waves are very important in the development of a bullish trend because they create the necessary conditions for an advancing impulse to follow. This is how these waves work together in order to create and sustain a bullish trend.
The theory behind this wave structure is that impulse waves separated by a consolidation wave have a tendency to mirror each other in terms of size. This theory can be used to generate a price objective.
There are two ways to go about generating a price objective. There is the linear-based price objective, which is derived using the size in dollar terms, and there is the log-based price objective, which is derived by using the size in percentage terms.
Putting this theory to work suggests that $6.10 is the linear-based objective, while $10.25 is the log-based objective. The linear objective has already been met. Therefore, by default, the log-based price objective for CannaRoyalty stock is now in play.
CannaRoyalty stock has broken away from its peers and is currently forging new highs. I have been and remain bullish about ORHOF stock.
I have my sights set on $10.25, which is the log-based price objective that was obtained using the theory behind the wave structures.
Check out the original article here.
Author: Patrick Brik, BAS, CFA, CMT