[Editor’s note: This story will be updated each week with new stocks and analysis. Please check back often for Mark’s latest take on marijuana stocks.]
Technical analysis has a bad reputation. This is unfortunate, but probably well deserved. Most of the research that I see, especially technical analysis of marijuana stocks, isn’t very good. Much of it is downright terrible. And even after extensive research, the academic community still doesn’t seem to have a definitive take on the practice.
Most analysts look at charts and mindlessly try to identify patterns without actually understanding what they are supposed to mean. Even worse, some analysts are proponents of bizarre techniques like Elliot Waves or Gann Theory. In my opinion, these methods are like UFOs and Bigfoot. Sure…they may be fun to talk about but they are not real. Professional institutional traders do not use them.
What is real is the fact that in financial markets there are certain levels that are more important than others with regards to the amount of supply and demand that exists at them. In addition, in financial markets prices are always doing one of three things. They are either going up, going down, or staying the same. If understood and applied correctly technical analysis should allow you to identify these important levels and trends. This knowledge will benefit your investment style, regardless of what it is.
The action in many of the cannabis equities has been very weak. Many of the stocks in this sector are testing or have broken important support levels.
Aphria Inc (APHA)
Aphria Inc (NYSE:APHA) produces and sells medical cannabis in Canada and international markets.
APHA stock broke support around the $6 level. This level was also support during the middle and then again at the end of August. If it continues to head lower there may be some support around the $5.20 level because it was where the low was in early August.
The $6 level will probably now become a resistance level. This is because the investors who bought it when it was a support level are looking at losses now that the stock is lower. They tell themselves that if it rallies back to the level, they will sell their stock so that they can get out at breakeven.
Those who sold it short at the support level are making money now that it is lower. They tell themselves that if it rallies back, they will short more and add to their positions. Both of these groups of investors will place their sell orders at the $6 level and this supply of stock creates resistance.
Canopy Growth (CGC)
Canopy Growth (NYSE:CGC) produces, distributes, and sells cannabis in Canada. It has a market cap of $8.7 billion.
CGC stock has broken the $26.60 level which was the lower side of its recent range. It will probably become a short-term resistance level.
If the stock continues to head lower there is a good chance that it will find support around the $23 level. This is because it is where the recent lows were in late August and early September.
Levels that were support in the past tend to become support again because those who wanted to buy the stock at the level and didn’t vow to themselves that if it drops back to the level, they won’t miss it. This time they will buy it.
Those who shorted it at the level are looking at a loss when it rallies and goes higher. They tell themselves that if it comes back to the level then they will cover and close out the position at breakeven. This demand for the stock is what creates support at the level.
Cronos Group Inc (CRON)
Cronos Group Inc (NASDAQ:CRON) produces and sells cannabis in Canada and Germany. Its current market cap is about $3.5 billion.
CRON stock just broke support around the $10.75 level and has dropped by over 10%. The $10.75 level was the bottom of the range over the past month, and it will probably become a resistance level. This move puts CRON back into a continuation of a longer-term downtrend that began in late March when it was trading around $24 a share. Since then the price has dropped by over 50%.
This stock may drop much further. I don’t see any clear support levels anywhere near current levels.
Cronos continues to be hurt by its lack of leadership. The current CEO is only temporary and the Board of Directors has not yet selected a new person to run the company.
KushCo Holdings, Inc (KSHB)
KushCo Holdings, Inc (OTCMKTS:KSHB) produces and distributes packaging supplies. After the recent decline of the stock its market cap is $205 million.
KSHB stock continues its freefall. It could be getting close to a capitulation which may mean that it could have a reversal and rally. Capitulation means that the sellers do not care about the price that they will receive for their shares. They just want their brokers to sell them. They want out at all costs so they can end the misery of watching the stock go lower everyday.
This type of selling typically leads to large volatility and a large amount of volume trading. That is starting to happen here. The volume over the past few days has been very large and the stock is gapping down.
Aurora Cannabis Inc (ACB)
Aurora Cannabis Inc (NYSE:ACB) is a Canadian based company that grows are sells medical marijuana, indoor cultivation systems, and hemp related food products.
After a weak earnings report and some analyst downgrades ACB stock has been in a freefall over the past three weeks. On the day of its biggest drop, it found support around the $5.50 level. There was support there because it is where the low was in early September. Now the stock has broken support around the $5 level. There was support at this level because it is where the lows were at the end of last year. It is also an important level psychologically. People like to buy stocks at nice round levels. It will now probably become a resistance level.
ACB is oversold so there is a good chance that it has a relief rally soon. The last three times that it was this oversold a rally followed. The term oversold refers to momentum. Momentum is a measure of where the stock is today verses where it was X may days ago. When this number becomes an extreme difference from the mean to the downside it is considered oversold.
Tilray, Inc (TLRY)
Tilray, Inc (NASDAQ:TLRY) engages in the research, cultivation, processing and sale of cannabis. Its current market capitalization is $2.6 billion.
TLRY stock has broken the bottom of its recent range and has been heading lower. Short-term, there may be some support around the $25.20 level because this is where the recent low was in early September. Longer-term, if the stock continues to drop there will probably be some meaningful support around the $22 level. This is because this is where the stock hit the market last summer when it wen public.
The cannabis industry is entering a consolidation period where I believe we will see a large amount bankruptcies, mergers and acquisitions. This company may be a takeover target because it recently acquired a huge block of shares that it will try to sell over the next two years. A strategic partnership is probably the most realistic way of doing this.
CannTrust Holdings, Inc (CTST)
CannTrust Holdings, Inc (NASDAQ:CTST) produces and distributes medical and recreational cannabis in Canada. At least it used to. The survival of this company is doubtful. If you follow the cannabis industry, you are probably familiar with the CannTrust story. CannTrust, now better know as Can’t Trust, got caught growing cannabis in unlicensed grow rooms after a disgruntled employee tipped of the authorities.
As is typically the case nowadays the management of the company discussed their illicit activities and detailed emails that the have been seized.
Then it turned out that CannTrust was using illegal seeds to grow in legal grow rooms which resulted in illegal cannabis being sold in the legal markets.
It should come as no surprise that this week Health Canada has suspended in license. Now the company will have to bear the costs of acquiring and probably ultimately having to destroy the cannabis that it has sold. I am not so sure that this company will be around for much longer.
At the time of this writing Mark Putrino did not have any positions in the aforementioned securities.
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