A quick look at some Cannabis Stocks...

Horizons Marijuana Life Sciences Index ETF – HMLSF is testing resistance around the $15 level.  This level was the top in February and March.  It is overbought so it may pull back over the next few days.

 

Aphria Inc – APH is testing short-term resistance around the $13 level.  This level was resistance in the middle of May.  It was also support in February.

 

Canopy Growth Corporation – WEED is testing resistance around the $42 level.  This level was the top in January.  It is slightly overbought so it will probably consolidate here for a few days.

 

Aurora Cannabis Inc. – ACBFF traded in a range between $5.50 and $7 since April.  It broke out of that range today but it is now overbought.

 

Cronos Group – CRON is testing resistance at the $8 level.  This level was the top in April.  It is now overbought.  The recent lows have been at the $5.50 level.

 

If you are investing in or trading in these companies, these are important issues to consider...

  • Is there sufficient liquidity and volume for an institutional investor to acquire a meaningful position?  Are there other institutional investors?  In other words, is there anyone to buy it from or sell it to?
  • Investment funds that are investing in these securities will need to hire experienced micro and small cap traders (like yours truly) who have expertise with modern trading methodologies in addition to have numerous traditional relationships.  Outsourcing and junior traders will not be effective.  Trading algorithms and the trade outsourcing business model won’t work with these illiquid securities and the funds will run into liquidity issues around $200-300 mil AUM.  These managers should look at a trader as a profit center as opposed to a cost.  An experienced trader who has extensive relationships and knows how the markets work will allow a manager to manage more AUM.  
  • The Canadian / US Dollar exchange rate needs to be considered, especially if you are going to hold them for the long-term.  Obviously, fluctuations in the currencies will affect returns. Many of these equities are Canadian Companies trading on Canadian Exchanges. 
  • What is more advantageous to trade?  The ADR or on the primary Exchange in Canada?  Liquidity needs to be considered.  The decision is also influenced by exchange rate calculations and forecasts, and also by investment mandates.  For example, an investment fund may only be able to invest domestically, therefore the only option would be the ADR. 
  • Important support and resistance levels have not been developed yet, because the trading history isn't long enough.  It takes time and volume to make a particular price level relevant or important, and most of these companies haven't been trading at these levels for enough time for these dynamics to have developed.  However, there will probably more support and demand at round levels like $10 or $20 due to their psychological importance.
  • Are there reputable brokers involved in the trading of these equities?  If so, that's most likely indicative that institutional buyers are investing in these companies and that is probably a Bullish Indicator.

 

The Canadian / US Dollar exchange rate needs to be considered, especially if you are going to hold them for the long-term. Obviously, fluctuations in the currencies will affect returns. Many of these equities are Canadian Companies trading on Canadian Exchanges.  The Canadian dollar is strongly influenced by the price of commodities.