The mania over cannabis stocks on Wall Street is well off its peak from 2018. Investing in stocks like Aurora Cannabis (NYSE:ACB) from here has become a trade with a lot of hopium attached to it. There still are the super fans of pot stocks but with a lot less resolve. The bulls now perhaps have the added realization that this is a long slog rather than a quick buck. While the S&P 500 is up 22% year to date, ACB stock and Canopy Growth (NYSE:CGC) are down 30%, and Tilray (NASDAQ:TLRY) is down double as much.
Even though it is depressed, ACB stock offers a lot of short-term opportunities for trading around the pivot levels. As for those who are strong believers in the long-term cannabis thesis, they need not worry about finding the perfect entry point. ACB is 70% off its highs and it just finished a seven-month long correction from a high of $10.30 to the low of $3.50 per share.
So it is safe to say that a lot of the froth that was in the stock coming into 2019 has already come out. This is not the same as saying that it can’t fall from here. But there’s definitely more meat on the bone at these levels then before. The argument for the long-term upside potential became stronger for the long-term investors.
For the last month, Aurora stock has been stuck inside of a trading range. It has been hitting resistance near $4 per share and but it has also found support at the lows it hit in the middle of October. So these short-term lines provide potential profit opportunities.
ACB Stock Has Imminent Trading Opportunities
When a stock range tightens into a small area of trading it gathers energy. Much like a super-ball bouncing wildly inside a tight hallway. If it finds an opening, it tends to shoot straight out of it. If the either bulls or bears are able to breach the sides of the Aurora Cannabis stock range, they will overshoot in that direction.
If ACB stock bulls can close above $4 per share, they can spark at least a 50 cent rally. The target would be the ledge that they lost at the end of September or higher. There will be resistance along the way, but this is a momentum stock so it moves fast. For this to happen, buyers need to hold the recent lows above $3.50 per share. Otherwise the consolidation period that started in October would be broken. And the rally could just as well happen in the opposite direction.
Fundamentally speaking, and even after this huge drop, cannabis stocks are still too expensive. ACB for example still sells at 20 times its sales while losing money. So even down here, there’s still a lot of hope from investors that it will grow into its valuation in the future.
Is It an Investment or a Trade?
But in this case, value is in the eye of the beholder. Fans of ACB argue that this is a young industry that is trying to establish itself while still illegal at the federal level. So the whole cohort of cannabis stocks will need legislative help. If the U.S. shows any inclination toward federally legalizing marijuana, all pot stocks will go bonkers. But since there are no imminent signs of this happening, it makes for a poor thesis to buy and hope it happens.
The long-term thesis for cannabis stock still has a lot of unanswered questions. These companies need a lot of headlines to go their way for them to grow into their expectations. So unless I am convinced of their prosperous future, this particular write-up is a trade opportunity and not an investment. Therefore, investors should place specific stops and stick to them.