Sundial Growers (NASDAQ:SNDL) stock has been falling out of favor with investors for years. Pot stocks in general have been wild trading vehicles since their inception.
The marijuana craze hit Wall Street with a bang and peaked in 2018. Then it faded from the headlines in an epic fashion. The first fade came when the Federal Reserve almost broke Wall Street going into Christmas 2018. The second came with the hunt for unicorns like Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT). Now electric vehicle stocks are leading the charge and stealing much of the Street’s attention.
Investor attention spans are short. However, fans of the cannabis industry have not lost their resolve. Case in point is how they traded out of the September correction. Canopy Growth (NASDAQ:CGC) and Aphria (NASDAQ:APHA) rallied over 100%. SNDL stock rallied over 400%, but not before making a new low in November. While it is holding its own, the fact remains that it is under a dollar and has given back a lot of the rally. This makes it even more volatile and tricky to trade.
SNDL Stock Is Part of a Special Breed
Penny stocks are a special breed of assets. Aside from considering their worthiness from the fundamental perspective, investors need to consider their trading aspects. There are two ways to address SNDL at this time. It is now 95% below the highs, so the first would be to plug one’s nose and buy it for the long term. The hope there would be that management is competent enough to pull it off in the end. They have recently restructured the company to unshackle it from debt. This speaks volumes to their belief in their own skills. They are also concentrating more on the retail opportunities. It’s not easy to make such sweeping changes while being a public company.
The second way of dealing with SNDL stock is to trade the charts shorter term. This will suit those who like to be more active traders than long-term investors. Stocks that are this wild can be exciting in between the start and the finish line. From that perspective, what it has going against it is that it’s still a bottomless pit. Saying this may upset the fans but it’s the truth.
So far, the bulls have failed to set a floor. The trend has been one with lower lows for months.
Evidence of a Bottom Will Be Key for Investors
Most often, finding a bottom is a process not an event. This is why it is imperative that SNDL stock stops making lower lows. For as long as this is happening, the sellers remain in control of the price action. Buying the pops will result in more frustrations for the bulls. Also, more of them will be trapped in this descending trend.
Lately, one could argue that the stock has been making higher lows since November. I would much prefer it when it gets above 60 cents, or even better, above 96 cents per share. The zone in between those values may hold a lot of sellers. It is also important for the stock to avoid setbacks like falling below 40 cents once again. It will be a tough slog in the mean time.
Sundial Growers is part of an intrepid group of stocks swimming upstream on Wall Street. Cannabis is still federally illegal, so it is amazing what they’ve already accomplished. Legalization in the U.S. will be an important sector topic this year, so that the whole cohort can take a step up in value. Furthermore, SNDL stock will come out of its pit very quickly once investors see any evidence that the retail efforts are paying off.
This is still a speculative stock right now, so size matters when making investment decisions. It’s not the type of trade that investors should risk a lot. Also, it is important to not average down since the outcome is still iffy.
SNDL stock being under $1 may give the impression that it’s cheap. But you can still lose 100% of your investment just the same. To make matters worse, the whole market is near its highs, so there are extrinsic risks from that as well. Being this far into a bull cycle leaves all stocks vulnerable to sharp corrections without warning.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.