In recent days, a determined stealing of profits has occurred in Sundial Growers (NASDAQ:SNDL) shares. But can today’s hole yield healthier portfolio gains tomorrow? Let’s examine what’s happened both off and on the price chart of SNDL stock. Then, we’ll offer a risk-adjusted determination aligned with those findings.
GameStop (NYSE:GME). Koss (NASDAQ:KOSS). AMC (NYSE:AMC). These days it’s easy to point fingers in the direction of Reddit’s Wallstreetbets forum and brokerage upstart Robin Hood with its now less-than-merry band of marauders. They’ve seen what happens when a smaller capitalization, speculative and heavily-shorted stock explodes higher and subsequently crashes back to earth in volatile and breathtaking fashion.
There’s more than a bit of truth to those accusations.
That same blame game also includes marijuana grow outfit SNDL among its well-documented ranks. But could Sundial Growers prove different than other recent short-squeeze flameouts and provide more durable profits for investors buying in today? Some evidence suggests its possible.
Investor Fixation
Well before “Gamestonk!!” and other heavily shorted stocks became a popularized short-squeeze trade, shares of SNDL were already gaining interest with investors. To be clear, SNDL is no Apple (NASDAQ:AAPL). But last November, shares began trading with the best of the best in terms of consistent and ginormous volume. Daily activity of 100 million shares being traded was common.
Sundial even saw volume in excess of 500 million on several occasions. That’s more than AAPL stock managed in any single session in all of 2020.
But the crown jewel of investors fixation with SNDL was Nov. 30 when the stock traded a stunning 2.05 billion shares. Of course and unlike AAPL, Advance Micro Devices (NASDAQ:AMD) or some other heavily traded mega-cap stock, Wall Street began opening its wallet in SNDL’s direction at a very meager stock price measured in pennies and a micro-cap valuation that was less than many of today’s well-paid CEO’s.
OK, so it’s not exactly a secret why the sudden interest in SNDL began. Despite what the Canada-based grow outfit lacked in size (and still does), a likely Cannabis 2.0 era where marijuana is decriminalized under a friendlier Biden administration and Democrat-controlled Congress is well-positioned to become a reality. And reasonably this would result in a surge in U.S. recreational demand. It also would provide access to traditional and less-costly capital for pot producers like Sundial Growers to expand operations more successfully.
SNDL Stock Daily Price Chart
Source: Charts by TradingView
It’s been several weeks since I discussed Sundial Growers as a speculative purchase for risk tolerant investors in front of Georgia’s House race. That benefit is now in place for marijuana stocks. But the short-term trade in SNDL stock is very much one-and-done. However, the long game of Cannabis 2.0 remains in the early innings for bullish investors.
Technically, the observation is SNDL’s steep correction is completing and worth gaining long exposure to shares. A doji decision candlestick has formed in-between the 62% and 76% Fibonacci levels. Stochastics is also oversold and on the cusp of bullishly crossing over. Together, a rally through the doji’s high would be a classic signal for investors to consider buying SNDL with a stop-loss set modestly beneath the pattern low.
As with any stock price chart, there’s no guarantee buying and selling picture-perfect entries and exits will pan out. And even were shares to cooperate, a daily chart doji spanning $1.22 to $1.71 is prohibitively volatile. That’s especially true in a stock of Sundial’s unproven and small-cap caliber.
The Bottom Line
To work around this challenge with less risk, buying the equivalent amount of contracts with a July $2/$5 bull call spread (i.e., 2 spreads rather than 200 shares for instance) looks good. Bottom-line, off and on the price chart this kind of strategy should help ensure this more speculative pot stock doesn’t perform more stealing than giving in the future.
On the date of publication, Chris Tyler held, directly or indirectly, positions in AMD and its derivatives, but no other securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
