Introduction & Summary
- 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 financial markets, prices are always doing one of three things. They are either going up, going down, or staying the same. I use a process and methodology that has been developed over twenty years in order to identify these levels and price trends
- An understanding and awareness of these levels and trends will add Alpha to almost any investment strategy
- I do not utilize many of the traditional Technical Analysis Techniques such as Gann Theory or Elliot Waves and believe they belong in the realm of Bigfoot and UFOs…fun to talk about but hardly credible
- My philosophy and method is based on experience, common sense, and logic. I spent almost two decades trading illiquid securities and this background gave me the ability to understand how to identify these levels and trends
- Now that they have started to develop trading histories, equities in the Legal Cannabis and Medicinal Marijuana sectors are starting to develop important and identifiable levels
Themes & Opportunities
- Widespread Social Acceptance
- Inevitably Legal Federally
- Recreational Cannabis
- Medicinal Marijuana
- Peripheral Opportunities
Aphria Inc. – Support at the $11.30 level has broken and as predicted it has now become resistance. The lower end of the recent range has been at $10.25. Longer-term the $13 level is important. The lows in February were right around it and it was pretty much the exact high in early and mid-May, and early June, and early July. There will probably be resistance there again if it trades higher.
Aurora Cannabis Inc. – ACB is testing and could be breaking support around the $7 level. This level was support in April and in May but each of these times it became oversold and rebounded. Now it has been consolidating over the past week so it is not oversold anymore.
Cronos Group Inc. – The $8 and the $5.50 levels are important in CRON. $8 was the recent high on June 6th and 7th, again on June 21st and 22nd, and it was also the top in April. It was also the low in January and the top in February. The recent lows in April and May have been right around the $5.50 level. These levels will probably continue to be resistance and support.
Emerald Health Therapeutics Inc. – EMHTF sold off hard after breaking support at the $3 level. It broke its downtrend and found support around the $2 level. It is starting to uptrend. I discussed this as a possible trade idea last week. I took a position at $2 on July 17th. My initial stop out was at $2 and my sell target was $2.50. I sold it on July 30th at $2.45. I always use a few cents discretion when my targets are at round levels.
GW Pharmaceuticals – GWPH broke support around $140. There was support there because it was the top in January and again throughout the second half of April. I discussed this as a possible long trade last week if it rebounded off of the $140 level and broke its downtrend line. However, the downtrend was never broken so a position wasn’t taken.
Horizons Marijuana Life Sciences Index ETF – HMSLF broke support at the $13 level. It should now become resistance. Longer-term there should be resistance at the $15 level. It was the top throughout March. It was also the top on June 7th and again on June 21st. Both times it became overbought and sold off.
Innovative Industrial Properties, Inc. – IIPR seems to have broken support at the $32.50 level. It has been resistance over the past few days. There was support around $32.50 because t is where the lows where in May. These two levels should continue to be important in the short-term.
Insys Therapeutics Inc. – INSY is testing support around the $6.50 level. This has been the low since May.
Kush Bottles Inc. – KSHB continues to test support at the $4.50 level. This level has been the low over the past month. It was also the low in February and March.
Scotts Miracle Grow – SMG broke support around the $79.50 level ahead of todays earnings. This was the low in early May and mid-June. Todays erratic trading is due to the earnings release.
Canopy Growth Corporation – The levels around $42 are important resistance for WEED. They were the top in January. They have also been the top since early June. At the end of June the $42 level was broken but it quickly failed after becoming overbought. They have been consolidating around the $33.50 level which is important because it was the top in March.
If you are investing in or trading in these companies, the following 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 are starting to develop. It takes time and volume to make a particular price level relevant or important and now that these equities are developing trading histories these levels are forming.
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.