Pot stocks look terrible, and you should stay far away until something major changes. Today we’re analyzing the space through the lens of Canopy Growth (NYSE:CGC) stock, but you can substitute its chart with virtually any major player in the space.
They’re all falling slow-motion into the abyss.
So, if you come seeking solace and a compelling bullish narrative to fuel your hopes for a turnaround – prepare for disappointment. I haven’t any such commentary to offer. The CGC stock chart doesn’t allow it.
I’ll be the first to admit that it wasn’t always this way. Cannabis companies were part and parcel of the reopening trade that took flight after November’s twin bullish catalysts of the Pfizer (NYSE:PFE) coronavirus vaccine and the Democrats sweeping the election.
Expectations of a marijuana-friendly administration brought big buyers to the yard, and pot stocks everywhere rocketed to the moon. From October to early February, CGC stock soared 300% higher.
CGC Stock Hits Reality
The power of a good story and compelling backdrop was on full display. But perception and hope only take you so far. At some point, sales and earnings growth has to live up to the hype. Else a rude awakening awaits.
And I don’t know how you describe the past eight months as anything but the rudest of awakenings. CGC stock is sinking to a new low as I type, bringing its total peak-to-trough drawdown to a harrowing -74%.
The dismantling has happened, mind you, while the S&P 500 has experienced a 20% runup and one of its least volatile years in history. So it’s not as if you can cite a market-wide downturn as a cause for the destruction. With CGC stock now back below $15, it’s essentially returned to where it was when all the hoopla began one year ago. Talk about an insane round trip.
Normally, I would have kicked off our discussion with a look at the industry exchange-traded fund to set the stage and provide context, but the correlation is so high between Canopy Growth and the Alternative Harvest ETF (NYSEARCA:MJ) that it’s redundant to show both.
In other words, the entire pot space is trading as one big blob. As a result, differentiation has been hard to come by. This, again, speaks for the difficulty in making money on bullish CGC positions while the entire industry is sinking like a stone.
Let’s take a closer look at the CGC stock chart.
Canopy Growth’s Chart Is Sinking
If you want to get a sense of just how volatile Canopy shares have been over the past four years, take a peek at the weekly time frame. Making money has been all about proper timing. Catch CGC at the right time, and you make a mint. Overstay your welcome, and your profits get lit on fire.
As far as surviving/thriving during the past year’s ride, all you had to do was pay attention to the trend. When CGC was trending higher above major moving averages, you wanted to be long. Once support broke and we plunged below the averages, the game was over.
The daily chart reveals just how consistent the downtrend has been. I’m partial to using the 50-day moving average as it strikes the right balance between being timely but not overly sensitive. We cracked it in February and have been pushing lower ever since.
Note how consistently sellers have stepped in at both the declining 20-day and 50-day moving averages along the way. I see no reason to try bottom fishing here until we see prices break resistance and show reversal characteristics.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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