Marijuana Stocks + Technical Analysis = Profits

Aphria, Inc. (NYSE:APHA) grows and sells marijuana. In additional to cannabis, their products include things like capsules and vaporizers.

On Monday the company announced that its President Jakob Ripshtein resigned. There has been considerable employee turnover in the upper echelons of management recently at Aphria. In January the CEO, Vic Neufeld and Co-founder Cole Cacciavillani announced that they were leaving. Time will tell if these changes are a good or bad thing.

The share price has fallen about 30% in the past month, but it just broke its downtrend after becoming oversold.

It has been consolidating around the $7 level. In this situation if I had been waiting to buy, I would go ahead and do it. This is because the downtrend line has been broken. Maybe this is because the sellers decided to cancel their orders because they are glad that Mr. Ripshtein is leaving.

There is nothing mysterious about trendlines. They are really just logic and common sense. If used correctly, trendlines should simply be graphical representations of the supply and demand dynamics that are occurring in markets. When the trend was headed lower it meant that the forces of supply were in control. Now that the downtrend has been broken, it illustrates that the forces of demand have equalized with the forces of supply.

Canopy Growth Corporation (WEED) is also a producer and distributer of marijuana. In terms of market capitalization, it is the largest Cannabis company in the world.

You don’t need to be a Market Guru to see that the levels between $65 and $70 have been an area of resistance. Since last September every time WEED traded up to these levels, the forces of supply stepped in and drove it down.

An important thing to understand about this company is that they have been losing money and seem to be headed in the wrong direction. Last year the loss was (.40) per share. That’s nearly three times greater than the loss of (.14) in 2017. It 2016 the loss was (.05) per share.

This is a situation where if I was considering selling, I would pull the trigger. If I was a buyer I would wait. The reasons are simple. It is starting to trend lower and there is resistance just overhead. The path of least resistance seems to be to the downside.

Aurora Cannabis (ACB) sells a lot of weed. The company just reported its last quarter’s earnings. Gross margins are a very strong 55%. Revenue grew 20% to 65 million Canadian dollars, which is roughly $50 million US dollars. That works out to be about nine tons!

It is clear that over the past eighteen months, the $14 level has been where the sellers come alive. It was the top in early 2018, then again in September, and most recently in April. If you are planning on selling this stock, knowing where this level is important. For example, suppose your broker or friend told you that the stock was worth $15 per share and suggest that you place your sell order at that level.

The fact that there is a lot of supply at the $14 level may prevent the stock from getting to $15. It may make a better decision to place the order at $14. Sure, it is a lower price but it is probably better than having your order at $15 not be executed because the stock once again got to $14 and then proceeded to head lower.

It is currently oversold and testing support around the $10.30 level. There is support there because it was resistance in November and January.

The Cronos Group (NASDAQ:CRON) - Produces and sell cannabis in Canada and Germany. You don’t need to be a Master Trader to see that the $14 level is important. It was resistance in September and December, and now it is support.

Support levels form because of the following reason. If a stock trades at a certain level vested interest develops. In September and December some investors sold short their stock at $14. For a while they were happy because they were thinking that they would be taking some profits.

But then in January the stock traded above that. The short sellers are now underwater and looking at taking losses. They tell themselves that if the stock trades back down to $14 they would close out their trades and break even. This means that now there will be buy interest and the $14 level will become support.

This is a situation where I would act whether I was a buyer or a seller. That is because it is either going to break support and fall or rebound and rise. It won’t stay at $14 forever.

You have to make a decision to act whether you are bullish or bearish. If you are correct and you wait too long, you may miss out on some profits.

Cannabis Sativa, Inc (OTCMKTS:CBDS) is engaged in all types of business related to cannabis, They develop, acquire, and license various products including edibles, recipes and delivery systems. Maybe they do too many things because the company has been losing money for years. Over the past five years it has lost about $40 million.

The stock has found support at prior support levels. This illustrates the importance of being aware of where the previous lows are. If you were considering buy this one and realized that it was in a downtrend and approaching levels that had been support in the past then it would make sense to wait because you would get a better price.

It has broken its downtrend and is consolidating. That means that the forces of supply have become equal with the forces of demand. While it was trending lower the forces of supply were in control. Now the forces of supply and demand have become equalized. This is what traders call sideways trading.

Horizons Marijuana Life Sciences ETF ( OTCMKTS:HMLSF)

You can see that this ETF is testing support around the $15 level. This level was support on April 15th. It is important because i was resistance in March and June of last year. It is also important psychologically.

Why is there support at this level? One reason is because there were investors who were considering buying it in April but never entered the trade. When they missed it, they told themselves that if it ever got back to $15, they would buy it. These dynamics form support.

This is one of the reasons why professional traders pay attention when stocks are approaching levels that were recent tops or bottoms. They understand these dynamics and use them to profit.

The long-term importance of the $20 level is obvious. It was resistance at the beginning of last year and again in September and October. This would be a logical pace to place a GTC sell order.

KushCo Holdings, Inc. (OTCMKTS:KSHB) is an example of an ancillary cannabis business. The company produces packaging products for the cannabis industry. It is a good idea to consider ancillary businesses for investment. Think of Levi Strauss. He wasn’t the miner. He was a person who sold things to miners. Whether you were a successful miner or not, you still would have need to purchase his goods.

It will be the same situation now. All the growers that will eventually go out of business still need to buy things like packaging.

There has been support around the $4.50 level going all the way back to September. There was also support these in early 2018. It is currently oversold and testing that support so I would expect to see some kind of bounce.

It is important to understand that when important support or resistance are being tested and markets are oversold or overbought, they trend to reverse. If they are not overextended, they tend to consolidate at the level before resuming their trend.

MDCL - Classic Symmetrical Triangle Pattern

Technical analysis has a bad reputation and I can totally understand why. Most of the technical research that I see ranges from just plain bad to downright ludicrous. As a veteran technical analyst sometimes I just want to bow my head in shame when I see some of this garbage. However, there is a lesson here to be learned in this marijuana stock, Medicine Man Technologies.

Most technical analysts study the markets and look for patterns without actually knowing just what it is they are supposed to mean. In addition, things such as Harmonic charts, Elliot wave and Gann theory are like UFOs and Bigfoot. They are fun to talk about but they are not real. In my more than twenty years as a hedge fund trader, I can honestly tell you that not once did I ever hear successful institutional portfolio managers or traders mention them.

However, there is validity to some traditional technical analysis techniques if used and applied correctly. Things such as momentum oscillators, support and demand levels, and reversal patterns are very valid if the user actually understands what they are. Successful portfolio managers and traders do talk about these techniques. .

When used and understood correctly, technical patterns should be an illustration of the supply and demand dynamics that are occurring in a market.

Let’s take a look at this perfect symmetrical triangle pattern that has formed in MDCL, What exactly does this mean?

This pattern tells me that MDCL is going to make a significant move either upwards or downwards in the near future. Here is why. The chart illustrates that as time progressed the sellers became more aggressive. This means that they were willing to accept lower prices. In addition, as time progressed the buyers also became more aggressive. That means they were willing to pay higher prices. These dynamics are what creates the triangle pattern on the chart. .

You can see that in mid-April MDCL was trading between $3 and $4. Then, as time passed, the range got smaller because the buyers and sellers both become more aggressive. By early May the range had fallen $3.30 to $3.50 and the close on Friday was at $3.40.

Because of this, there will now be a lack of supply between current levels and $4. This is because the sellers who would typically be in this range are no longer there. They reduced their prices and sold their stock. In addition, there will now be a lack of demand between current levels and $3. That is because the buyers who would typically be at these levels paid higher prices. They completed their orders and are no longer in the market.

Now we have a situation where there is little sell interest between current levels and $4 and little buy interest between current levels and $3. These dynamics set up a situation where the stock could make a dramatic mover either up or down.

For example, suppose you wanted to buy 1,000 shares. If there was plenty of supply in the market there may be 500 shares offered at $3.45 and 500 shares offered at $3.50. You would buy your 1,000 shares at an average price of $3.475.

Now suppose that there is a lack of supply in the market. There may be 500 shares offered at $3.45, but there may not be any more shares offered until the price gets to much higher levels. If the next lowest offer of 500 shares was at $3.95 and you bought them your average price would be $3.70. This is 10% higher then the price would be if there was more supply around current levels!

Of course, the same dynamics apply to selling as well If there is sufficient buy interest at $3.35 a seller could sell their shares at that price. If there is no buy interest until the price gets down to the $3 level, then the seller would have no choice but to sell it for $3. This is more than 10% lower then it would be if there was more demand!

This example illustrates how a lack of supply or demand in the markets can cause them to move dramatically. The classic technical analysis literature says that symmetrical triangle patterns are typically (about 2/3rds of the time) continuation patterns. This means that the breakout will be to the upside as the longer range uptrend continues.

My goal here is not to give a trade recommendation. My intention is to show how there is some validity to some technical analysis techniques. Stay away from ridiculous nonsense like Gann theory and Elliot waves. Use common sense and try to understand how certain patterns or formations illustrate supply and demand dynamics. I promise that it will help your trading.

If you trade the Cannabis stocks, you should know where the important levels are.

In financial markets, there are certain price levels that are more significant than others with regards to the amount of supply and demand that exists at them. In addition,prices are always doing one of three things. They are either going up, going down, or staying the same.

BHT does not utilize many of the traditional technical analysis techniques such as Gann Theory, Harmonic Patterns, or Elliott Waves. BHT questions and doubts the validity of these techniques and believes they are in the realm of Bigfoot and UFOs. They are fun to talk about, but hardly credible.

Morning Wake and Take (Profits)

As someone who was the head of trading at three different hedge funds, I can tell you that I have been in my share of research meetings. One of these funds invested in marijuana stocks.

The meeting usually consists of the investment team. An investment team is typically made up of portfolio managers, research analysts, and traders. The portfolio managers are the bosses and decide WHAT investments the fund will make. They are supported by the analysts who assist with the research.

It is the role of the traders to decide HOW the positions are entered or exited. The traders job to is to be the ‘eyes and ears’ of the fund into the market. The traders should know what is going on in the markets. This would include things such as being aware of relevant earnings releases or news stories, learning what other funds are doing, and knowing which price levels are important.

The research meeting typically starts with the trader discussing issues are effecting the markets and the fund’s investments. One of the most important things that the portfolio managers want to know, is where are the important levels in the market. In financial markets there are certain levels that are more important than others with regards to the amount of supply and demand that exists at them.

Knowing where these levels are can help make the investing profitable. For example, suppose a stock that a fund holds is trading around $36 and the research team believes that it is worth $38. The team may want to place an order to sell the stock at $38 because they believe that is the fair value and would be happy to get that price for it.

However, the trader may know that there is a significant sell interest in the market at the $37 level. In this case the team may be wise to consider placing the sell order at $36.50 instead of $38. This is because with all of the sell interest at $37, the stock may never get to $38. All of the buy demand may be filled at $37 and then the stock could head lower. It may not trade back up to the $38 level for years.

The team would have missed out on the chance to sell and take profits. They wouldn’t have received what they believe is the fair value, but accepting a small discount is probably better than holding on to the position and watching it head south.

If I was conducting a research in which we discussed the following stocks, these are the important market levels that I would make sure that the team be aware of.

WEED is currently testing support around the $65 level. You don’t have to be a Market Guru to see that the $65 level is important. This level was resistance from January through April and the top last September. If you are considering selling this you may want to pull the trigger. If you want to buy it, it may make sense to wait.

TLRY continues to trend lower. It has fallen by about 70% since October. This company has yet to earn a profit and the action of the stock illustrates that. It is hard to believe that it was actually trading above $250 last September. Wall Street clearly doesn’t get this one. The average target price is about $97 and the average rating is a ‘hold’. It is currently trading around $45.

ACB - The levels around $14 have been resistance. It was the top early last year, in the fall, and again in April. There may be support around the $10.30 level because it was resistance in April.

APHA - I am watching the $6 level for support because it was resistance throughout December. It is also oversold so we may see a little rally.

$14 is clearly an important level for CRON. It was resistance level last September and December so there will probably be some support there now. It is oversold so it may even rally off of it.

You don’t need to be a Market Guru to see that the $4.80 is important It was clear support last April, August, and again in December. Each of those times it became very oversold and rallied off of the level. When markets get to important support or resistance levels and become oversold or overbought then tend to reverse. When markets get to important levels and consolidate, they tend to eventually break the levels and start a new trend. The key to a profitable trade is to wait for the trend line to break before entering it. You won’t get the exact bottom or top price but the risk reward dynamics are much better than just guess.

This stock has been a monster. There is resistance at the $90 level and the recent uptrend has been broken. It looks to me like it will trade sideways or head a little lower in the near-term. This is a perfect example of an ancillary business that profits of off the Cannabis industry.. Think of the Levi Strauss model. You don’t want to be a miner. You want to be the person that sells things to the miner, because win or lose, they still needs picks, shovels, and jeans.

This Cannabis Company loses money and will probably end up in the Dustbin of Wall Street history, but it may still be a good short-term investment

This Cannabis company loses money and is probably destined for the dustbin of Wall Street History, but it may be setting up for a low risk/high reward short term investment. Cannabis Sativa, Inc. (CBDS) is involved in many areas of the cannabis industry.

I chose this stock for this week’s Kronical because CBDS is definitely in a position where some lessons can be learned. Here are five things to consider:

Radar - This stock got on to my radar screen because it is in the cannabis industry and it has dropped 70% since September. Anytime that a stock falls that dramatically in such a short period of time, there is always a chance it will rebound or see a ‘dead cat bounce’.

Fundamentals - The company has been losing money for years. Last year’s loss was (.20) per share.

Technicals - The stock is oversold and at levels that were support in the past. The $2 level was support last September, and after the recent selloff it has become support again. In addition, it has been in a clear downtrend . Because it is oversold and at support, there is a significant chance that it could rebound off of these levels. If it does, it seems like the next important resistance level is around $2.70. This level was support in December.

Risk Management - We need to understand that humans have not evolved in a way that is conducive for successful trading or investing. When money is on the line it incites an emotional response. Fear of taking a loss makes investors hold on to losers for too long while fear of missing a profit causes investors to close out their winners too early. That is why you should never enter a position unless you know where you will take your stop-out loss and where you will take profits. This is the most important rule of investing!

How I would play this - Here is what I would do. The trigger to enter the trade would be the break of the downtrend line. My stop-out would be at $1.95 and my sell price is $2.65. The sell price for taking a profit is just below a level that will probably be resistance. The sell price for taking a loss is just below important support. That is because if the support breaks, the stock could trend much lower.