Cannabis stocks took a tumble at the open today, highlighting flip-side risk to aggressive FOMO-type buying permeating the cannabis market currently. The market had a nasty surprise for those expecting a blue sky breakout on-open, with Canopy Growth Corp., Aurora Cannabis Inc., and Horizons Marijuana Life Sciences Index ETF all reaching record highs yesterday. We examine further.
Technically, the cannabis market started out exceedingly strong this morning, carrying with it yesterday’s euphoric momentum. Select Tier-1 cannabis stocks such as Cronos Group Inc. tacked-on another 10% or so pre-market, with Canopy Growth and Tilray Inc. topping out at around 5% and 7%, respectively. It appeared the market was attempting to pick up where it left off.
Update to the "FOMO Returns" article posed last night
Update 8:00 am EST
— Benjamin A. Smith (@BenjaminA_Smith) October 16, 2018
However, bullish continuation simply wasn’t it the cards. Market participants took the opportunity to sell the open aggressively, despite broad market strength which saw the New York Stock Exchange gap up 400 points.
Practically every major Canadian listed LP shared in the carnage equally. Canopy Growth shed ↓13.48%, peak-to-trough, within a span of 45-minutes off the open. Much the same with Aurora Cannabis, which capitulated ↓15.94% within 20-minutes, prompting a brief volatility halt on the Toronto Stock Exchange. Cronos Group, Hexo Corp., CannTrust Holdings Inc. and OrganiGram Holdings Inc. all cratered to a similar degree. This was undoubtedly a highly-coordinated institutional program selling event.
To put this bearish volume into context, this was by far the largest on-open selling in CGC over last two months. There was absolutely nothing tepid or unintentional about it.
The upside in this equation is that despite the carnage, broad market technical damage has not occurred.
The Horizons Marijuana Life Sciences Index ETF (HMMJ) successfully tested its October 15th gap-open low of $24.58/share, thus giving the Canadian cannabis stocks a possible lower-high base to work from. From a buy-side market perspective, yesterday’s bullish impulse remains intact until that mark is breached on an hourly basis. This pullback—while painful to short term paper profits—could also be construed as a healthy necessity towards building additional buy-side momentum going forward.
Regardless, it was a stark reminder to all retail investors that the sharp edge of FOMO cuts both ways, and that the worst time to invest is often when sentiment runs white hot.
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