Its time to look at the marijuana sector for potential trading opportunities again. So grab some chips to stave off the munchies while I explain why well-selected marijuana stocks or a sector ETF might be worthy of a a higher-risk trade.
Canadian pot stocks (saving me the time to spell out “marijuana” every time) are a mixed bag. Most are pretty small, and thinly traded. Three stocks – Canadian names all, make up a good chunk of the well followed Horizons Marijuana index ETF (HMMJ-T). They are: Tilray, Canopy Growth, and Cronos. Tilray is a relatively new issue without much history, so I wont bother charting it. Still, its about 19% of the ETF at this moment (note that this ETF changes positions and sizing faster than some of us change our socks & undies). So – you should keep an eye on that stock if you own the HMMJ ETF.
First, here is the HMMJ chart. Note the nice base and the breakout, followed by the textbook test. Very encouraging:
Here are the charts for CRON and WEED:
At 11% of the ETF holdings, its worth examining this chart. It’s not in a trend. CRON has been stuck in a sideways pattern since early 2020. Nothing to get excited about. Having said that, sideways is better than down, so the impact on the ETF is more neutral than anything.
Canopy Growth (WEED)
WEED is struggling with holding its support line near $30. A bounce off of that level by a buck or two would probably indicate that zone is proven to hold, and upside might become more probable. Again, worth watching. Disclosure: We own WEED in our Aggressive Growth Strategy.
While not a significant position in the HMMJ ETF, this stock is reasonably liquid with enough history to offer a readable chart. The stock looks like it needs to cross a neckline near $20 before it breaks out. This differs than the stocks noted above and for the ETF, which are further along in their basing process. Still, if the stock does break $20, that might indicate a Head & Shoulders bottom, which can be a powerful formation. Keep an eye.
Pot stocks, and the subsequent ETF(s), are looking interesting right now. Look for further signs of strength before buying, but they are depressed enough to potentially represent a profitable short termed play if/as/when they start to catch a bid.
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Pot stocks might seem depressed when compared to their long-gone heydays, but they the decent ones are still grossly overvalued by any measure. Prefer to wait until this mkt. finally tumbles. THEN look for the bargains!
Agree from a valuation point of view Bruce–you are totally correct. But this sector is a good trading vehicle. You can swing trade it. As I emphasize in the blog–its a risk trade, not an investment–to your point.
Not a pot related question but here it goes anyway:
I hold some bond-like securities (eg. Utilities).
The consensus among economists and analysts is that tapering will occur earlier than anticipated and rate increases will follow thereafter.
I’m worried about my bond proxy holdings – the utility I hold has already taken a hit with the other renewables.
I don’t hold these for income specifically.
I’m a growth investor with another 20years of work.
I hold it for downside protection/portfolio stability.
Is it best to get out of these names and look to financials and/or REITs in order to achieve the same protection but reduced rate risk?
Thank you, thank you.
Not all utilities are the same. BEP.UN for example is very “green era” focused, but others are a mixed bag. I am avoiding the highly focused “green” orientated utilities. But the more diversified utilities should be fine. My view is that the sector is at an opportunistic pullback level. We bought a utility not too long ago- I am convinced the sector is ok for part of ones portfolio keeping that in mind.