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.