Sundial Growers Inc SNDL went up more than 4% at one point on Friday, opposite the S&P 500, which fell about 1.6% after a bearish day, despite the fact that the fund fell 2.64% off its high-of-day on Thursday.
Sundial is trading in a heavy downtrend despite the pop, which entered into the stock 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.
Moving averages can be used to 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 the 200 day simple moving average indicating a long-term downtrend.
A stock can signal when the lower low is in by printing a reversal candlestick such as a doji, bullish engulfing or hammer candlestick. The lower high could be signaled when a doji, gravestone or dragonfly candlestick is printed. The lower lows and lower highs often take place at resistance and support levels.
In a downtrend, the trend is your friend until it is not and there are ways for bullish and bearish traders to participate in the stock:
Bearish traders who are already holding a position in a stock can feel confident that 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 enter when the stock is higher and the downtrend breaks, indicating a reversal into an uptrend may be in the cards.
The Sundial Chart:Sundial Chart: The stock lost 43% of its value over just 20 trading days because of the Sundial's downtrend. The most recent confirmed lower low was printed at the 55 cent level on April 19 and the most recent confirmed lower low was printed at 52 cents the day before.
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 trend higher on Monday, which could 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 its trading session near its high-of-day price, it will print a bullish engulfing candlestick, making it more likely that the double bottom pattern will be recognized.
Sundial is trading below the 21 day and eight-day exponential moving averages EMAs with the eight-day EMA trending below the 21 day, both of which are bearish indicators. The stock is lower due to the eight-day EMA, which is currently acting as heavy resistance and guiding it lower. Bullish traders may want to wait until after Sundial has regained the level of 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'