Have Marijuana Stocks Gone Down in Smoke?
Stockscores Foundation for the week ending November 19, 2019
In this week's issue:
In This Week’s Issue:
- Stockscores Market Minutes Video – How Long to Hold on to a Loser
- Stockscores Trader Training – Have Marijuana Stocks Gone Down in Smoke?
- Stockscores Feature Strategy – Pot Stocks to Watch
Stockscores Market Minutes – How Long to Hold on to a Loser
This week, I look at how long we should hold on to a losing trade before it is time to exit. Then, my weekly analysis of the stock markets, a Market Scan on Stockscores to find opportunities and a look at the day trade of the week on CVET.
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Commentary of the Week – Have Marijuana Stocks Gone Down in Smoke?
Cannabis stocks were the source of a lot of wealth creation up till last year but in 2019 they have suffered miserably. Long term buy and hold investors in the group have watched big profits go up, or shall we say down, in smoke. Has that created an opportunity?
We should not forget there is a real business behind the group. Cannabis is legal in Canada and becoming legal in other jurisdictions. While company earnings have typically lagged expectations, we should not write the group off. It is in its infancy and there is a lot for producers to learn about getting their product to consumers. What we know is that there are consumers who demand the product.
I like to look at similar situations from the past to help make predictions for the future. In 1999 and early 2000, there was a lot of wealth created during the Dot Com mania. It seemed like any online retailer or service company with a website and a heart beat was able to achieve astronomical valuations. Then the bubble burst and they all came back down to reasonable prices, or in many cases, went out of business.
However, out of the ashes came massive and very real businesses. The most notable is Amazon but there are many others. Today, every company has an online presence and conventional bricks and mortar business have suffered if they did not join the revolution.
I believe that we will see a few of the many Cannabis companies become big successes while most will fail. The key is to understand what to look for when trying to bottom fish these stocks to pick the turning point for the few that will turn higher and survive.
Fortunately, it is quite simple. Watch the actively traded Cannabis stocks for a break of their downward trend lines from a rising bottom, preferably on their 3 year weekly chart.
Don’t try to buy the bottom, be willing to leave a little on the table by buying after the stocks have already started to go up. By waiting for the downward trend to be broken, you increase the probability for success.
For this week’s Feature Strategy, I show the three year charts of some of the well known Cannabis names and what to watch for. Once tax loss selling is over, we may see these names start to turn higher.
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Emotion can make stocks go up too much but also down too far. Emotion creates opportunity and right now, there is panic in the pot stock market. Watch these stocks for the signs of a turnaround that I describe. We are probably weeks or even months away from a good turnaround signal but if they happen, there could be a nice rally when one occurs.
T.WEED (CGC) is in a very linear downward trend that has been in place since May. Currently prices are far below the downward trend line which means there is trade right now for a bounce back up toward the downward trend line. That is just a trade however, the longer term opportunity will come when a line that you draw from the May high across the tops is broken. Ideally, this break should come after the formation of a rising bottom on the stock's chart.
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ACB has a very similar situation to T.WEED (CGC) in that it is in a long term downward trend but has gone parabolic to the downside, taking prices far below the downward trend line. A lower probability trade for the bounce back up to the downward trend line exists today but the higher probability, longer term trade will come when the downward trend line is broken after the formation of a rising bottom.
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CRON has good long term support at $6 which is where it is right now. There should be a short term trade here on a bounce from oversold conditions but only consider a longer term investment when the downward trend line is broken from a rising bottom.
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