Aurora Cannabis Inc, Canadian Cannabis Stocks Enter Trading Week With Momentum

Benjamin A. Smith
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Aurora Cannabis Inc (TSX:ACB) (OTCQB:ACBFF) (FRA:21P) and Canadian cannabis stocks enter the new trading week with moderate momentum in-hand. The former’s case is catalyst-specific, while the sector is demonstrating tangible basing action from contracting prices beginning late September. We look into the trading week to be, along with key technical level on select cannabis stocks.

First up is Aurora Cannabis, which has been among the strongest technical performers since mid-August. While material news flow has been lacking the last couple of weeks, the company stole the show late Friday when a Form 40-F filing surfaced showing that Aurora was up-listing to the New York Stock Exchange. Now that the details have been disclosed, the key question heading into the week is how much of the current move has been priced-in by the market.

Unlike stealthy up-list intentions undertaken by Cronos Group Inc.(February 2018) and Canopy Growth Corp. (May 2018), Aurora Cannabis telegraphed its plans well in advance. In a mid-September interview with Midas Letter Founder James West, Chief Operating Officer Cam Battley stated, “We can talk a little bit about it. We’ve previously indicated very clearly that we plan to have a US listing, and now I can say that we’re targeting next month; it’ll be October.” Three days later, CNBC picked up on the narrative by confirming the company plans of a U.S. stock listing next month. With the news all but confirmed by top company officials, investors have had a chance to front-run the event—and that’s exactly what happened.

Aurora Cannabis Inc. CCO Cam Battley shares the company’s plans to list in the U.S. in October and details of recent acquisitions such as ICC Labs Inc and Agropro

In concert with a mid-September media report indicating that Coca-Cola Co. was in talks to acquire the licensed producer (the original dominant catalyst), ACB has been on fire of late. Since Midas Letter aired the interview with Mr. Battley (see above) on September 17th, Aurora Cannabis has vastly outperformed the market. The stock is up a scintillating ↑26.35%, while the benchmark Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ) is essentially flat (↑0.68%). So to is primary competitor Canopy Growth, which has fell ↓2.75% during that span. Even with the Coca-Cola news losing traction quickly, ACB has remained remarkably resilient in the face of listless market conditions. No doubt, NYSE up-listing intentions is the primary force keeping the bid robust—and has been for a couple of weeks now.

Despite the protracted run, there’s reason to believe Aurora Cannabis has room to ascend. This is best seen on an hourly time frame, which demonstrates a classic bull flag formation.

Higher lows are clean and well-defined. While both buying and selling has been equally constrained, the onus is on bears to change the dynamic—which they haven’t. Any selling coming through is lackluster and generally below trend. Buyers have taken advantage by pushing base support higher along the consolidation. Friday’s late news helped push prices through some near-term resistance levels—on strong volume—which should pressure bears further as (potential) October 17th legalization and NYSE catalysts loom close by. Furthermore, ACB is not in overbought condition, giving bulls some added room to maneuver.

An hourly close above $12.95, then $13.48 on above trend volume would put ACB’s all-time highs in play at $15.20.

Cannabis Sector Showing Impressive Resilience

Aurora Cannabis could be a benefactor of broad cannabis sector momentum this week. The story has more to do with bearish trepidation more than anything else.

After running ↑77.86%, trough-to-peak, from August 14th to September 20th, the sector eventually entered cool-down mode. However, unlike in January when the sector smashed through all-time highs, today’s selling has been remarkably orderly; sell-side volumes light. In the last eleven sessions, HMMJ has only shed ↓9.44%, in what can be described as a lack of wanton selling. This is especially true in the last couple of sessions, with world markets—and risk assets in particular—tumbling off a cliff.

While it’s certainly possible cannabis stocks could succumb to added risk asset disfavor in the coming week, they’re also positioned to extend gains should the broad market stabilize. Canopy Growth, Tilray Inc., Organigram Holdings Inc. and HEXO Corp. have all averted major technical damage. Each one is in what I can consider ‘technically neutral’ territory, or vulnerable to strike in either direction. So to is HMMJ, which held onto its September 17th gap-up low and appears to be bottoming with strength indicators turning up.

For bears, the current technical picture is surely disappointing. While the ultimate direction of the next big break has yet to play out, the lackluster selling from September 20th sector highs is not particularly encouraging. For whatever reason, market participants have not sold this rally as vigorously as they did in January. Call this the Canopy/STZ effect, legalization proximity or the further legitimization of the sector at-large. Regardless, if the bears can’t make a stronger move soon, buy-side cannabis investors will be emboldened.

Keep in mind, short positions hit $3.1 billion in September, up 52% since June. The kerosene is present, as are they accelerants. It remains to be seen whether a transcendent sector event (Big Beverage partnership, legalization euphoria)—or lack thereof—become the match, or wet blanket in this equation.

Canadian markets are closed Monday, but their OTC equivalents will give a sneak peak into market sentiment heading into Tuesday. Key levels to watch on HMMJ include hourly closes below $23.04 and $22.64 (downside extension), or an hourly finish above $24.00 (upside extension) on above trend volume.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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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.

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