GW Pharma Trades Near Support After FDA Approval

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GW Pharma Trades Near Support After FDA Approval

GW Pharmaceuticals plc (GWPH) shares quickly surged more than 5% before the market started, but then fell back as traders “sold the news.” On Monday afternoon, the U.S. Food and Drug Administration (FDA) authorized the company’s cannabinoid-based Epidiolex for the treatment of uncommon pediatric seizures. In addition to being the first FDA-approved cannabis, Clarivate predicts Epidiolex’s sales might reach $1.2 billion by 2022. Goldman Sachs retained its Buy rating and $188.00 per share price objective on GW Pharmashares, while Bank of America concurred.

Despite the FDA permission, the stock dropped more than 4% on Monday and has been erratic thus far on Tuesday. The company’s $3.65 billion market valuation on $10.4 million in sales last year suggests that investors may have already factored in possible advantages from the approval. (See also: The United States Approves the First Cannabis-Based Drug.)

GW Pharma shares fell from pivot point support at $152.09 and the 50-day moving average at $148.05 before rallying on Monday afternoon and dropping again on Tuesday morning. With a value of 40.46, the relative strength index (RSI) looks to be rather neutral, but the moving average convergence divergence (MACD) is in a severe downturn going back to early June.

Traders should look for a breach from S1 support at $140.01 to the 200-day moving average at $126.86 to close the bearish gap that has been open since mid-April. If the stock recovers from S1 support levels, traders may see a move back above the pivot point and 50-day moving average, potentially retesting recent highs around $165.00. Given the bearish MACD reading and the neutral RSI reading, the most probable possibility is a breakdown. (For more information, see: What Stocks Are on the Marijuana Index?)

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StockCharts.com provided the chart. Except via passively managed index funds, the author has no investment in the stock(s) mentioned.

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