After sliding along with its pot peers, shares of NEPT (TSX: NEPT) are showing signs of life over the last few weeks as the sector wakes up from a rough several months. Yesterday's strong 8.51% gain alongside the stock's recent trend line breakout has us watching this name with optimism as it potentially positions itself for a bullish bounce in the short-term.
While we are bullish on the sector, and NEPT, we have to recognize that this correction has been particularly brutal, so before we enter any pot names, we want to be ensured that technical confirmation of a breakout is made, prior to our entry. In the case of NEPT, that line in the sand is the static resistance at $4.75, or just a hair above yesterday’s close.
If the stock can break and close above $4.75, we’d look for more resistance up at $5.25 followed by dynamic resistance (200 day moving average) currently at $5.35. Above that, resistance also likely enters the picture around $5.65 - $5.70 and $6.15 - $6.20. We think a move above the $4.75 resistance could generate enough bullish momentum to rally shares up to the $5.65 - $5.70 level, thus we’d look for a price target at $5.69.
As for support, we would watch the $4.30 - $4.35 level as the first major level to hold on any share price weakness, followed by more at $4.00. Realistically, a move below the $4.30 - $4.35 level would concern us that a new leg down for the stock may be on the cusp so we’d set a stop loss at $4.29.
As mentioned off the top, the key for this trade is a break and close above the $4.75 resistance. With that said, we’d only enter the stock upon a close above $4.77, specifically on strong volume. Based on a $4.77 entry level, our upside potential looks to be 19.3% while our downside risk is limited to 10.1%.
