Cronos Group (NASDAQ:CRON) reported earnings this morning and the stock initially popped on the news but then reversed lower. This is a momentum stock so they run fast in both directions. This makes CRON a tough trade because on the way down it will look like it’s falling into an abyss.
Part of the problem this morning is that it rallied 6% yesterday coming into the earnings event. This made it almost impossible to build more upside this morning, so giving back some of the pop is only natural and not worth the major sounds of alarms for a deep dive.
In fact, this morning levels merely bring CRON stock back to its breakout candle from just yesterday.
Nevertheless, there is the potential for a swing trade opportunity for short-term traders and a long-term entry point for those who want to hold it for the long haul.
Technically, this morning’s breakdown could trigger a bearish pattern and invite momentum sellers to target $16 per share. Even then, there would be support there because it’s the next available pivot zone. Those tend to offer support on the way down because bulls and bears would want to fight them out hard.
Furthermore, the area between $14 and $16 per share is support. In the middle of January, CRON sharply broke out of $14 and mounted a 70% rally in a month. What was important is that CRON barely hesitated to break through $16 per share to overcome the big fail spike of last September.
Clearly, this is a stock that likes to move fast and doesn’t care much about the macroeconomic environment. Last year, CRON stock did not crash into Christmas like the rest of the markets. It has been setting higher lows since the October correction. This shows ongoing momentum, which often has dips like today’s dip.
So for as long as the ascending trend line is intact, the dips along the way are buying opportunities.
Fundamentally, CRON stock, like all other cannabis stocks, is extremely expensive. Marijuana stocks have multi-billion market capitalizations and only a few million in total sales. Clearly, Wall Street is gaga over the potential that they have in the coming years.
How to Approach CRON Stock Today
This early in the stage of business development, the sky is the limit and logic need not apply. For now, perhaps what counts most is the balance sheet and Cronos has the second best one after Canopy Growth (NYSE:CGC).
So CRON has the funds and the help of Altria (NYSE:MO) to execute on what ever plans they need to carve themselves a nice piece of the cannabis pie in the years to come. The upside potential is so vague with medicinal, potables, edibles and other recreational uses that the shorts would have to battle a multi-headed beast.
These are the ultimate growth story in the formation phase, where no one is an expert. So if those interested in investing in the cannabis field need to plug their noses and jump in on dips, today’s drop in Cronos stock is not massive, but even if it carries its downside momentum to its fullest target, starting here is a decent trade for both short and long term.
This morning, CRON management reported a year-over-year loss. At this early stage such a loss matters very little. Growth companies are supposed to over spend so they can grow. As long as they are executing on plans, I don’t fret bad margins.
This is a stock that came into the earnings event up 97% year-to-date — double the performance of CGC. The ETFMG Alternative Harvest ETF (NYSEARCA:MJ) is only up 64% for the same period.
Clearly, CRON is out performing the bunch. This confirms that betting on it on dips is a viable thesis for most traders. It is also comforting to know that MO invested billions in CRON.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.