GW Pharmaceuticals plc (GWPH) shares briefly rose more than 5% in pre-market hours but resumed their downtrend after the market opened as traders "sold the news." The U.S. Food and Drug Administration (FDA) approved the company's cannabinoid-based Epidiolex for the treatment of rare childhood seizures on Monday afternoon. In addition to Epidiolex becoming the first FDA-approved cannabinoid, Clarivate believes that the drug could reach $1.2 billion in sales by 2022. Goldman Sachs reiterated its Buy rating and $188.00 per share price target on GW Pharma shares, while Bank of America similarly issued a positive note.

Despite the FDA approval, the stock slid more than 4% on Monday and has been volatile during Tuesday's session. The company's $3.65 billion market capitalization on revenue of $10.4 million last year means that investors may have already priced in the potential gains from the approval. (See also: US Approves First Cannabis-Based Drug.)

Technical chart showing the performance of GW Pharmaceuticals plc (GWPH) stock

From a technical standpoint, GW Pharma stock broke down from pivot point support at $152.09 and the 50-day moving average at $148.05 before rebounding on Monday afternoon and then falling again on Tuesday morning. The relative strength index (RSI) appears relatively neutral with a reading of 40.46, but the moving average convergence divergence (MACD) remains in a strong downtrend dating back to early June.

Traders should watch for a breakdown from S1 support at $140.01 to the 200-day moving average at $126.86 to close the gap from mid-April on the downside. If the stock rebounds from S1 support levels, traders could see a move back above the pivot point and 50-day moving average to retest prior highs at around $165.00. The most likely scenario could be a breakdown given the bearish MACD reading and still neutral RSI reading. (For additional reading, see: What Stocks Are on the Marijuana Index?)

Chart courtesy of The author holds no position in the stock(s) mentioned except through passively managed index funds.