For Aleafia Health Inc (CVE:ALEF) (OTCMKTS:ALEAF) (FRA:ARAH), its time had come. After rising ↑652.77%, peak-to-trough, since August 23rd, the company finally had it’s day of reckoning—however temporary that might be. We take a closer look at today’s price action forensics, and the dramatic afternoon reversal that ensued.
The beginning of the session provided little indication of the impending fireworks to come. Aleafia Health (ALEF) gaped-up for a fourth straight session, buoyed by positive news flow and recent price upgrade by Mackie Research, which hiked their target ↑371.42% on September 25th. Strong investor confidence has underpinned the recent rally, evidenced two days ago when the high-profile Serruya Family announced the intention to initiate a strategic investment in ALEF at a price of $3.10/share. The notable takeaway: the investment came at zero discount to market and with no warrants attached.
Whoa: "@AleafiaHealth announced that The Serruya Family will complete a strategic investment through a non-brokered private placement of $10,000,000 in $ALEF common shares at a price of $3.10 per share."
Note: PP was conducted at ZERO discount to market, despite 440% recent run
— Benjamin A. Smith (@BenjaminA_Smith) September 25, 2018
Aleafia also became a majority owner in an exciting joint venture with One Plant, an adult-use cannabis retail operation led by members of the Serruya Family. It’s anticipated the initial launch will include over 20 retail locations in Ontario, although it’s unclear how today’s Ontario government cannabis proposals will affect those plans, if at all.
Overall, the news flow in ALEF could not be any better. In a span of two weeks, Aleafia Health had secured its first sale of medical cannabis to CannTrust Holdings Inc., announced the commencement of a joint medical cannabis study with Cronos Group Inc., were added to the benchmark Horizons Marijuana Life Sciences ETF (HMMJ), and yesterday, procured a deep business relationship and robust financing with one of cannabis’ most significant private financiers. The perfect ingredients for upside extension had developed, and early investors were handsomely rewarded.
But as with every amazing rally, the music stops at some point. Irrespective of how transformative of powerful the news flow is, there comes a point where investors just won’t defend the bid at severely over-extended levels. After a month of deep green, ALEF’s time had come. And boy, was the safety valve selling dramatic.
Unlike the previous four sessions, ALEF was unable to sustain its consolidation gains near the daily highs. As we can see above, buyers had all but evaporated (orange) as the morning session rolled along, leaving prices deadlocked. Things might have stayed that was had twitchy profit taking not set in, which unleashed a torrent of investors scrambling to secure their windfall. The snowball eventually triggered additional stop loss selling, culminating in a brief—if unsuccessful—trading halt (volatility) in the stock. The freight train had met its mountain.
Taking a wider view, perhaps the surprising thing is how long the bullishness was allowed to proceed. The 20-period Relative Strength Index (RSI) closed at 96.46 on the daily yesterday, and peaked somewhere around 96.90 today. That’s an almost unheard-of level. To put that into context, cannabis unicorn Tilray Inc. peaked at 89.08 in early September, during the first phase of its historic run-up. To say prices were overextended—despite the amazing and warranted rally incurred by ALEF—in a profound understatement.
In my view, today’s reversal is more a reflection of Aleafia Health’s success more than anything else. The dramatic fall is simply a by-product of tremendous price growth which had reached dizzying heights, irrespective of catalyst. Long term investors can take comfort in the fact that today’s result was more technical in nature, where profit taking, stop loss selling and short-term profiteers conspired to create the perfect storm we witnessed today. There’s nothing fundamental or overly-concerning about it.
Investors who missed the boat the first time have now been afforded the opportunity to enter, should they so choose. An hourly close above $3.00/share would give bulls a significant higher-low anchor in which to base a recovery. Either way, ALEF’s powerful rally has opened eyes, and vaulted the company into prominence as Canada’s next great up-and-comer vertically integrated LP.
Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.
Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.
Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.