Cronos Group (NASDAQ:CRON) hadn’t been trading all that well lately. In mid-May, it looked like CRON stock was going to break out and move higher. But broad market selling pressure made investors risk averse and as many of you know, cannabis stocks aren’t exactly a flight-to-quality trade.
However, Cronos stock could be getting a second chance. Shares are moving higher by almost 10% in Wednesday’s trading session thanks to bullish commentary from Bank of America/Merrill Lynch. Analysts upped their price target from $13 to $20. They also hit CRON stock with a “double upgrade,” going from underperform to buy.
The move follows Tuesday’s 6.2% rally and just like that, Cronos Group stock is turning things around. At least when it comes to the stock charts. Should investors buy CRON with the hope that it goes to $20?
Trading CRON Stock
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The daily chart above looks a little busy, and I apologize for that. But at different times, different trends and range levels are in play. Cannabis stocks tend to be volatile and can send false signals — both in the form of breakouts and breakdowns. That’s not just CRON stock. It includes Aurora Cannabis (NYSE:ACB), New Age Beverages (NASDAQ:NBEV), Canopy Growth Corp (NYSE:CGC) and others too.
So what does Wednesday’s rally say about Cronos stock’s trajectory? Shares have been stuck in a nasty downtrend since the stock topped out north of $20 in February.
Tuesday’s rally put CRON stock back near that downtrend mark, setting it up for a wonderful make-or-break situation. If shares can hold their gains on Wednesday, it will hurdle downtrend resistance in spectacular fashion.
The question then shifts to, can it do the same thing with $16? This mark has played a role over the past few months, sometimes as support and at other times as resistance.
It doesn’t need to clear $16 right away to be okay though. If CRON stock can maintain $15.36, it will have reclaimed its 50% retracement for the one-year range, as well as the 20-day moving average. So perhaps a rally up toward resistance and a pullback into this range would be possible. And quite frankly, it wouldn’t be unhealthy either.
On the flip side, losing this range — the 50% retracement and 20-day moving average — would signal that perhaps CRON stock isn’t ready to run yet.
To get to $20, Cronos Group stock has to do two things. First, it needs to hurdle its 50-day moving average at $16.45. Then, it needs to clear the 38.2% retracement at $17.65. If it can do those two things, a run to $20 is possible.
Bottom Line on Cronos Stock
So should investors buy Cronos stock? To answer that, investors must remember two things: Speculative investment and long-term thinking.
The cannabis industry is going through explosive growth. It’s what got Constellation Brands (NYSE:STZ) and Altria (NYSE:MO) involved on the investment front, and it’s what will attract more big-money investors over time. It’s also what will convince well-known consumer brands to partner up with these companies for new products.
That said, it will take time for CRON, CGC, NBEV, ACB, Tilray (NASDAQ:TLRY), Aphria (NASDAQ:APHA) and others to grow into their lofty valuations. Even by tripling and quadrupling their revenue, these valuations are still pretty stretched. It’s what ties into our first point about CRON stock being a speculative investment. They all are, really.
The cannabis industry has its eyes set on global expansion. Admittedly, many world governments are more open to cannabis than many investors would have suspected even just a few years ago. We’re heading in the right direction in terms of approval, but regulatory risk is still there until we start clearing some major hurdles.
Personally, I find Canopy to be the blue-chip stock of the bunch. But with that being said, CRON stock is setting up nicely on the charts. We highlighted its reasonable risk/reward in the $13 to $14 range last month. Now moving out of that range, we need to see it hold $15.36 to show that it can maintain momentum and shake its downtrend.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
