Sundial Growers Inc (NASDAQ: SNDL) spiked up more than 4% higher at one point on Friday, opposite to the S&P 500, which was falling about 1.6% after a bearish day dropped the fund down 2.64% off its high-of-day on Thursday.
Despite the pop, Sundial is trading in a heavy downtrend, which the stock entered into on March 25 when it topped out at the 89-cent level.
A downtrend occurs when a stock consistently makes a series of lower lows and lower highs on the chart.
The lower lows indicate the bears are in control while the intermittent lower highs indicate consolidation periods.
Traders can use moving averages to help identify an uptrend with descending lower timeframe moving averages (such as the eight-day or 21-day exponential moving averages) indicating the stock is in a steep shorter-term downtrend and descending longer-term moving averages (such as the 200-day simple moving average) indicating a long-term downtrend.
A stock often signals when the lower low is in by printing a reversal candlestick such as a doji, bullish engulfing or hammer candlestick. Likewise, the lower high could be signaled when a doji, gravestone or dragonfly candlestick is printed. Moreover, the lower lows and lower highs often take place at resistance and support levels.
In a downtrend the "trend is your friend" until it’s not and in a downtrend, there are ways for both bullish and bearish traders to participate in the stock:
- Bearish traders who are already holding a position in a stock can feel confident the downtrend will continue unless the stock makes a higher high. Traders looking to take a position in stock trading in a downtrend can usually find the safest entry on the lower high.
- Bullish traders can enter the trade on the lower low and exit on the lower high. These traders can also enter when the downtrend breaks and the stock makes a higher high indicating a reversal into an uptrend may be in the cards.
The Sundial Chart: Sundial’s downtrend has caused the stock to lose 43% of its value over just 20 trading days. The most recent lower high in the downtrend was printed at the 55-cent level on April 19 and the most recent confirmed lower low was printed at 52 cents the day prior.
- On Thursday and Friday, Sundial tested the 50-cent level as support and bounced, which has created a double bottom pattern on the chart. If the pattern is recognized, Sundial may continue to trend higher on Monday, which could possibly negate the downtrend.
- If Sundial closes the trading session below the 53-cent mark, the daily candle will have a long upper wick, which could indicate lower prices will come on Monday and the downtrend will continue. If the stock closes the trading session near its high-of-day price, it will print a bullish engulfing candlestick, making it more likely the double bottom pattern will be recognized.
- Sundial is trading below the eight-day and 21-day exponential moving averages (EMAs), with the eight-day EMA trending below the 21-day, both of which are bearish indicators. The eight-day EMA is currently acting as heavy resistance and guiding the stock lower. Bullish traders may want to wait to enter into a position until after Sundial has regained the level as support.
- Sundial has resistance above at 55 cents and the 64-cent mark and support below at 50 cents and 45 cents.
See Also: EXCLUSIVE: Sundial CEO Says Day-Trading Retail Investors 'Helped Shape The Business'
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