[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.]
In financial markets certain levels are more important than others with respect to the amount of supply and demand that exists within them. In addition, financial market prices are always doing one of three things. They are either going up, going down or staying the same. When applied correctly, technical analysis of marijuana stocks should help you identify the important levels and trends in this sector.
Understanding these dynamics will help you make money. For instance, suppose you want to buy a stock if it drops to the $10 level. Your plan may not work if you don’t understand the current market dynamics. There may be significant support at the $11 level. The stock may fall but not get to $10. It may find support around $11 and then rally. Because you didn’t know where the support was, you lost out on a chance to make money for one dollar.
There was important news for the industry that no one seems to be talking about. The Office of the Attorney General said that it will begin processing applications to research cannabis. As of right now, the University of Mississippi is the only institution in the United States that is currently allowed to do so. The DEA said that it wants to improve access to marijuana research. This is a major step down the path toward legalization on a Federal Level.
This news could be the reason why many of the stocks in this industry have broken their recent downtrends and have been consolidating.
Aurora Cannabis Inc (ACB)
Aurora Cannabis Inc (NYSE:ACB) is a Canadian-based company that grows and sells medical marijuana, indoor cultivation systems and hemp-related food products.
ACB broke its downtrend after finding support around the $5.50 level. If this level breaks and it goes lower, look for support around the $5 level. This is where the lows were in December and January.
If the stock trades higher, there is a good chance that it will hit resistance around the $7 level. This level was resistance in August. It was also support in June and July.
Why would a prior level that was support become a resistance level? One of the reasons is because the people who bought it at $7 when it was support are now looking at losses. They tell themselves that if the stock trades back up to the $7 level, they will sell it to get out at breakeven. This supply of stock at the level creates resistance.
Cronos Group Inc (CRON)
Cronos Group Inc (NASDAQ:CRON) grows and sells marijuana.
CRON stock has broken its recent downtrend and has been consolidating above support around the $10.75 level. If it rallies there will probably be resistance around the $14 level. It was a support level from May through late July.
It seems to me like CRON stock will continue to consolidate in the short-term. It is in the middle of a range and the momentum is neutral.
An interesting but largely ignored dynamic with this stock is that by consummating its deal with Altria (NYSE:MO) CRON effectively became a sin stock. These are stocks of companies that engage in what some would consider unethical behavior. Altria, AKA Phillip Morris, certainly fits the description.
Because of this certain institutional money managers that have ESG concerns will not be able to invest in the stock. This could put it at a disadvantage to its competitors.
Canopy Growth Company (CGC)
Canopy Growth (NYSE:CGC) grows and sells marijuana.
CGC stock broke its recent downtrend and has been consolidating around the $27 level.
If it heads lower, there is a good chance that it will find support around $23. This is where it recently found a low before rallying. The people who wanted to buy at $23 and didn’t tell themselves that if it drops back to $23, they will buy it.
Those who shorted it at $23 are now looking at a loss. They tell themselves that if the stock drops back and they can get out of it at breakeven, they will cover at $23. Added to this are professional traders that want to profit off of a clearly defined level and you can understand why a prior support level could be support again.
If CGC heads higher there is a good chance that it will run into resistance around the $32 level. This level was support in the first half of August.
KushCo Holdings, Inc. (KSHB)
KushCo Holdings, Inc. (OTCMKTS:KSHB) sells packaging supplies.
KSHB stock has broken its recent downtrend and has been consolidating around the $3.75 level.
Consolidating or trading sideways are terms that refer to markets that are in equilibrium. In other words, the forces of supply are equal with the forces of demand.
When stocks are in a downtrend, the forces of supply are stronger than the forces of demand. When markets are trending higher the forces of demand are overpowering the forces of supply.
When trendlines are properly understood and drawn correctly, a trendline break could mean that the control of the market is about to change. In the situation here when the red downtrend line broke, it was an early indication that the selloff was about to come to an end. The stock has been trading sideways since then.
HEXO Corp (HEXO)
HEXO Corp (NYSE:HEXO) grows and sells medical marijuana.
HEXO recently found support around the $3.80 level. This level will probably be support again if it heads lower. The stock may have formed a reversal pattern, which would mean that it is about to head lower.
The stock rallied everyday from Aug. 30 through Sept. 6. Each day, the closing price was higher than the opening price. These days are blue on the chart. The days when the closing price was lower than the opening price are red.
Then on Sept. 9 something happened which could mean that the forces of supply are about to take leadership over from the forces of demand.
You can see that the stock opened at what was the high price of the day. Then it sold off over the course of the day and closed at its lows (this is represented by the big red line). This pattern could mean that the sellers are about to take control of the market.
Innovative Industrial Properties (IIPR)
Innovative Industrial Properties (NYSE:IIPR) manages industrial properties and leases them to licensed medical marijuana growers.
IIPR is consolidating below the important $90 level. This level is important because it was a resistance level from last March through June. Then, when the market saw some dramatic selling two weeks ago, it is where the stock found a floor. Since then, it slowly traded through the level and has been consolidating below it.
Why would a level that was prior resistance become support? Those who bought it there and those who wanted to buy it but didn’t each told themselves they will acquire shares if it drops back to the level.
Those who are short were feeling pretty good when it went lower. But after the stock rallied and broke $90 to the upside they are losing money. They say to themselves that they will buy it back at $90 if they can, so they can close out of their position without losing money. This demand for the stock at the $90 level is what creates support.
Medicine Man Technologies, Inc. (MDCL)
Medicine Man Technologies, Inc. (OTCMKTS:MDCL) provides cultivation consulting services to cannabis growers.
MDCL stock is overbought and it is approaching a level that has been resistance before. We will probably see some profit taking or consolidation.
The levels around $3.90 were the top in April, and then again in May and June. In addition, MDCL stock is the most overbought that it has been since April.
Overbought refers to the momentum. Momentum is where the price is today versus where it was X many days ago. When this number reaches an extreme to the upside, it is considered to be overbought.
This is an important dynamic to understand about markets. When they are oversold and get to support, they tend to rebound. When markets are overbought and get to resistance, they tend to selloff.
As of this writing, Mark Putrino did hold a position in any of the aforementioned securities.