ACBFF Stock: An Embedded Indicator Suggests Further Gains

I am returning to focus on Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB) stock once again, because there have been some developments with ACBFF stock that are worth noting. My last report was published on November 14, titled “Aurora Cannabis Stock Technical Analysis: A Correction Is Imminent.” In that report, I outlined a key technical indicator that was suggesting that ACBFF stock had become extremely overbought and that a correction was imminent.

I explicitly mentioned that in order to alleviate this overbought condition, I’m expecting a brief but sharp correction to ensue. This correction would be substantial, but it would do little to change the overall bullish picture. The price action over the last few days has accomplished what I was anticipating, and in that time frame a new indication using the same indicator has evolved, and it is supporting the notion that an attempt at higher stock prices is currently in development.

The following Aurora Cannabis stock chart illustrates the indication that was warning of an imminent correction:




Chart courtesy of StockCharts.com

This chart illustrates the relative strength indicator (RSI) which was the focus of my previous publication.

The RSI indicator located in the upper panel of the ACBFF stock chart is an oscillator that is used to determine whether an investment is overbought or oversold. An RSI oscillator reading below 30 is an oversold indication, while an RSI oscillator reading above 70 is an overbought indication.

On November 13, when I wrote that report, the RSI had reached a staggering 94.08, which is an extremely high and unsustainable reading, suggesting some sort of correction was needed to alleviate this overbought condition.

The next day, Aurora Cannabis stock opened at $5.08, traded as high as $5.45, and fell to an intra-day low of $4.19 before closing at $5.04. Over the course of the next few days, the correction I was anticipating finally took hold and ACBFF stock corrected by 28.2%% from peak to trough. This corrective action was enough to bring the RSI reading back to 70, but it was unable to break below it.

The inability to break below 70 is very significant because it implies that the RSI oscillator has become embedded. An embedded RSI is suggesting that an impulsive move towards higher prices is still in development, and it will continue until the RSI closes below 70.

This impulsive moves towards higher stock prices is in line with the implications suggested by the wave structure highlighted on the following Aurora Cannabis stock chart.

Chart courtesy of StockCharts.com

This ACBFF stock chart highlighted a wave structure known as constructive price action. Constructive price action creates the building blocks that support and nurture a trend using two distinct waves.

The wave highlighted in green is an impulse wave, and it captures the stage in a trend where the stock prices makes sharp and sustained moves towards higher stock prices.

The wave highlighted in purple is a consolidation wave, and it captures the stage in a trend where a prolonged correction ensues. This wave is very important because it crated the necessary conditions so a new impulse wave can develop.

These waves work in alternating fashion in order to prevent a trend from overheating, and as a result, a sustainable trend is created.

On October 30, Aurora Cannabis stock broke out of the consolidation wave, and an impulse wave has taken form.

The RSI indicator is currently embedded suggesting that an impulsive move towards higher prices is in development, which is in line with the notion suggested by this wave structure that an impulse wave is currently in development.

On November 6, When Aurora Cannabis stock was trading at $2.63. I outlined in a publication titled “Aurora Cannabis Breaks Out, Setting the Stage for a Move Toward $10″ that this wave structure suggests a potential price objective for ACBFF in the range of $10.00 and $12.00, using a method called a “parabolic extension.” This objective is still in play, and given the current market environment for stocks, especially marijuana stocks, I think that this range is attainable.

Analysts Take

The extreme overbought reading implied by the RSI oscillator has been alleviated. In the process of alleviating this condition, the RSI indicator has become embedded, which implies that the move towards higher ACBFF stock prices has yet to run its course. This suggests that target price between $10.00-$12.00 is still a plausible outcome for Aurora Cannabis stock.