[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.]
Unfortunately technical analysis has a bad reputation. However, it is probably well deserved. Most of the technical analysis of marijuana stocks that I see is dubious at best and downright terrible at worst. Many analysts mindlessly try to identify patterns without really understanding what they are supposed to mean. Some analysts are even proponents of bizarre techniques like Gann Theory and Elliot Waves. My belief is that these methods are better suited for a Twilight Zone episode than for making money in real markets.
In financial markets, there are certain price levels that are more important than others with regards to the amount of supply and demand that exists at them. In addition, stock prices are always doing one of three things. They are either going up, going down or staying the same. You can see this by looking at almost any chart. If you understand technical analysis and apply it correctly, you can identify these important levels and trends.
Knowing where these levels are will help you profit. For example, suppose you want to buy a stock if it gets down to $5 a share and then sell it if it rallies to $10. If there is support around the $5.50 level, the stock could fall to $5.50 and then rally to $10. Because you didn’t know where the support was, you would have missed out on a significant profit for 50 cents.
Marijuana Stocks With Levels to Watch: Aphria (APHA)
Aphria (NYSE:APHA) manufactures and sells medical cannabis in Canada and internationally. It currently has a market cap of about $1.5 billion.
If it continues to head lower, there will probably be some support around the $6 level. This is where the two most recent lows were on Aug. 15 and Aug. 27.
If it gets oversold it may have a tradable rally off of the level. The key is to not try to catch the bottom. Bottoms are typically more volatile than tops. This is because tops are created by hope while bottoms are created by fear.
A better strategy could be to wait until the downtrend is broken before buying it. In other words, buy it after it starts to rally. You won’t get the low trade, but the risk-reward ratio is better than trying to guess where the exact bottom is.
Hexo (NYSE:HEXO) produces, markets and sells cannabis. The current market cap is about $985 million.
When a stock is rallying, the forces of demand are in control. When a stock is selling off, the forces of supply are in control. A reversal pattern shows a change of this leadership.
From Aug. 28 through Sept. 6, buyers controlled the market. The stock rallied every day. Then the action on Sept. 9 formed a reversal pattern. It has dropped by about 10% since then.
The up days are blue and the down days are red on the chart. On Sept. 9, the stock opened at the day’s high. The buyers were in control that morning.
Then the stock sold off over the course of the day and closed at the lows. This action means that the forces of demand have run out of steam and the forces of supply have taken over. These dynamics are what forms a reversal pattern on the chart.
Cronos (NASDAQ:CRON) grows and sells marijuana. Its current market cap is $3.8 billion.
CRON stock continues to trend sideways above support around the $10.75 level. It has been trading in the same range for about one month. If the support at the $10.75 level breaks, it will probably become a resistance level.
How does this happen? Why would a level that was support become resistance? Consider the following.
The investors who bought a stock at a support level are feeling good when it bounces and they are making money. But then when the level breaks and the stock goes lower, they are now looking at a loss. They tell themselves that if the stock rallies back up to that level, they will sell it so that they can get out of it without losing any money. They place their sell orders at the level, and this supply of stock is what creates resistance.
The Green Organic Dutchman (TGODF)
The Green Organic Dutchman (OTCMKTS:TGODF) engages in the provision of medical cannabis solutions. It currently has a market cap of around $500 million.
Aurora Cannabis was a large holder of TGODF stock. It recently announced that it sold its position of 28.8 million shares to a consortium of Canadian Banks. This caused TGODF to drop by about 10%.
There is a chance that the consortium, or at least members of it, have been selling the shares they acquired in the block transaction. This could be what is forcing the stock lower. If this is the case, then when this selling comes to an end, there is a good chance that we will see a meaningful rebound.
TGODF is also oversold. The last time that it was this oversold, in July, a large rally followed. The term “oversold” refers to momentum. It is a measurement of where the stock is today versus where it was X many days ago. When this number reaches an extreme to the downside it is considered to be oversold.
Aurora Cannabis (ACB)
Aurora is a Canadian-based company that grows and sells medical cannabis products. It currently has a market capitalization of about $5.4 billion.
ACB stock has been crushed over the past week. It has dropped from $6.50 to $5.30. Last week the company reported a loss for the fourth-quarter that was larger than expected and revenue that was short of estimates. Because of this, Stifel Nicholas downgraded the stock from “hold” to “sell.”
When the stock dropped, it found support around $5.50. This was expected because it is where the recent lows were. The next morning, the level broke and the stock traded lower. The $5.50 level may become a resistance level now.
If it continues to trade lower, it may find support around the $5 level. This is because this level was where the lows were in December. It is also an important level psychologically. If ACB is oversold when it reaches that level, there is a good chance that it will be a low-risk buying opportunity.
Medicine Man Technologies (MDCL)
Medicine Man Technologies (OTCMKTS:MDCL) provides cultivation consulting services to cannabis growers. The current market cap is about $133 million.
MDCL stock seems to be failing at resistance after becoming overbought.
The levels around $3.90 were the top in April, and then again in May and June. This is the reason why there is resistance at this level.
Like oversold, overbought refers to the momentum of the stock. 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 sell off, as is the case here.
Kushco Holdings (KSHB)
Kushco Holdings (OTCMKTS:KSHB) sells packaging products and solutions. It currently has a market cap of about $270 million.
On Sept. 11, the company reconfirmed its guidance and discussed what it believes are positive developments. Apparently shareholders were not impressed. The stock has been in a free-fall since then.
I do not know when (or if) the selloff will come to an end. A clue that may signal that this is about to happen could be extremely large volume. This would be a sign of capitulation and would be a short-term bullish dynamic for the stock.
Capitulation means that the sellers are sick of the misery the stock is causing and they just want to get out. They tell their brokers to sell it and they don’t even care about the price. They want it to go away. This usually results in very-large-volume trading. This could be a short-term bullish dynamic.
At the time of this writing Mark Putrino did not have any positions in the aforementioned securities.