Look alive, momentum lovers. Despite the broad market’s dithering, marijuana stocks are finally percolating. The awakening has been a long time coming, and today we’re going to spotlight three picks that demand your attention.
To gain a sense of the industry’s ebb and flow, I use the Alternative Harvest ETF (NYSEARCA:MJ), which counts the biggest cannabis companies among its top holdings. Since February’s blow-off top, MJ has been trending lower beneath a falling 50-day and 20-day moving average.
The fall from grace wasn’t isolated to marijuana stocks. Growth stocks everywhere took it on the chin as traders started looking for better-valued bargains elsewhere.
But the pendulum is starting to swing back. Last week, MJ rallied back above its 50-day, breaching multiple ceilings in the process. This morning’s 2% gain is providing further follow-through and evidence of buyers’ staying power.
That said, here are three tempting targets if you’re looking to get in on the action.
We’ll follow my usual course with a quick chart breakdown and trade idea.
Marijuana Stocks: Aurora Cannabis (ACB)
Aurora Cannabis is echoing the behavior of its industry fund, MJ, with one exception. Its trend reversal is more mature. In other words, ACB stock has already seen more upside and distance itself from the 50-day moving average.
A two-day pullback developed after the initial breakout, but buyers swarmed quickly, and we’ve rallied over the past three sessions. Shallow retracements like this reveal bulls’ aggression and suggest the newfound trend has more gas in the tank.
At $10, ACB is cheap enough for a straight stock play. I like using last week’s low ($9.07) as the stop loss if you’re swinging directional plays. If you want a higher probability play, then sell puts.
The Trade: Sell the $9 put for 58 cents.
Cronos Group (CRON)
The old idiom of birds of a feather flocking together holds for marijuana stocks. Especially right now. Cronos Group looks extremely similar to ACB, and MJ for that matter. In addition, it also carries a similar price tag to Aurora. I’d characterize its recent surge as a breakout, a base, and now, a new breakout attempt.
Relative strength is on display this morning, with CRON up nearly 5% at the time of this writing. There isn’t any major resistance until $11, making it the obvious target for chart watchers like me.
From a strategy perspective, I’d echo the ACB commentary. Long stock for a directional play, or short puts if you want to game time decay.
The Trade: Sell the July $8 put for 40 cents.
Marijuana Stocks: Tilray (TLRY)
The final pick for today’s hat trick of marijuana stocks is Tilray. The big differentiator for TLRY versus its predecessors is volatility. It has a booming beta with a penchant for massive moves. While ACB and CRON are up 3% and 5% this morning, TLRY is galloping higher by 9%. But even this comparison doesn’t do it justice. If you want to see when things really get wild, check out the epic squeeze in February, which saw prices more than triple in a little over a week.
While I wouldn’t necessarily bet on the lighting striking twice, TLRY could still deliver some nice gains if pot stocks remain in favor for a spell. No sense in departing from the logic used to build plays on the other two picks. Stick with buying stock or shorting puts.
The Trade: Sell the July $15 put for 60 cents.