In yesterday’s piece titled ML’s 5 Best Cannabis Stocks Market Calls and Narratives of 2018, we highlighted our most prescient collection of stories published in 2018. But the bill has already come due, as some of our narratives also turned out snake eyes. Thus, we’re paying our tab by presenting our worst market calls and narratives of 2018—stories where our underlining thesis didn’t quite turn out as envisioned.
Please note: this article did not consider any Midas Letter CEO interviews, as these were not considered opinion pieces.
With Aurora Cannabis tanking in mid-summer—immersed in 11-straight lower daily closes, in fact—we made a cardinal sin: we tried to predict a short-term bottom without letting price action guide us. Specifically, we asked if an “oversold bounce isn’t imminently coming. Not only for Aurora but the sector at-large.” The answer, quite definitively, was a resounding ‘no’.
Although Aurora Cannabis rallied ↑4.61% on the Monday following the call, it was short-lived. Over the next fifteen sessions, ACB would proceed to lose another ↓30.64%, descending to a low close of $5.34/share on August 14th. The following day, Constellation Brands announced a C$5 billion direct-equity stake in Canopy Growth, putting an abrupt end to the summer bear market.
But for us, the moral of the story is clear: never base market conclusions because something has dropped ‘X’ percent over a short period of time. Lesson learned. Catching falling knives is more apt to slice your fingers, rather than improve your brokerage account P/L.
With Aphria looking technical strong in late-June, we jumped the shark by predicting APHA would move significantly higher. Inexplicably, the stock just couldn’t follow the Horizons Marijuana Life Sciences Index ETF (HMMJ) lead by breaking early-June highs. It would be a re-occurring theme for Aphria, which consistently seemed to lag its peers throughout the summer.
After failing to break the channel highs in & around $13.00/share, APHA would succumb to the bearish impulse affecting cannabis stocks. Four days after we printed the article, APHA closed at $11.75/share—probing the bottom of a defined channel stretching back into May. Twelve sessions later, support gave way and Aphria was printing mid-10’s in short order.
Looking back, the lesson learned was obvious: predicting short-term breakouts—however strong the technicals appear—is a poor idea when a stock trails sector performance at-large. Duly noted.
With the market trending upward in anticipation of a third reading Senate vote on Bill C-45, I put out an inexplicable call. In my view, the cannabis sector—as defined by HMMJ—faced “capitulation risk” heading into the first week of June. Can I get a mulligan on that one please?
Sure, there was some uncertainty surrounding regulatory limits on the amount of THC contained in cannabis products and marketing, but it wasn’t anything the market couldn’t overcome.
After finishing flat the day following the call (↑0.73%), HMMJ raced up ↑9.55% over the next three sessions. Some individual cannabis stocks—such as Cronos Group—did significantly better. The piece was not only incorrect, but incorrect from the get-go. Prices eventually did succumb following the reading, but not after most swing traders would have been stopped out.
Following this public face-plant, we’ve took a look at the piece to ascertain what exactly went wrong. Our conclusion: over-reliance on short-term technical price action influenced our thinking more than was otherwise warranted. Our solution: reliance on longer term price action (i.e. hourly >) to reduce ‘noise’ in the charts. It means we write less about such events, but predictability is what matters.
With Canopy Growth entering into bear market territory over four sessions following the October 15th high, we jumped the shark. Similar to scenario #1, we prematurely interpreted “encouraging” price action signs and surmised that, “While there’s few silver linings in the overall price action, some notable late-session buying—combined with robust support underneath—may prelude a significant bull stand beginning early next week.” Nope, there was nothing encouraging about it.
In the first session following the article, Canopy Growth cratered ↓11.20% to $41.60/share; by the following Monday, price sank to $33.07.
Although the piece was fantastically inept on all fronts, it was important confirmation that technical setups take time to form. It’s easy to get caught up in the perception of constructive price action when outsized moves occur. Again, catching falling knives is prone to leave you bloody without the proper technical confirmation in place. We have been guilty of this on occasion.
To our audience, we sincerely apologize for pulling a “Jim Cramer” on this one:
— SeñorWeedStocks (@KolombianGold) October 19, 2018
Due to mixed prediction results within, I’m placing this one in the ‘loss’ category.
Scenario #1 – Market Sentiment And “Feel” Will Shift Abruptly
This has indeed occurred, although “the days of 8%± sector swings are coming to a close” has not transpired.
Scenario #2 – The Market Will Punish The Stragglers
Indeed, this is currently ongoing.
Scenario #3 – There Will Be No Protracted Sell-The-News Event
There were two protracted selling events: the first followed Bill C-45’s passage; the second occurred upon adult-use legalization in October.
Wayland Group, James E. Wagner Offer Enticing Value Proposition For Patient Investors (too early for conclusions, but not prescient so far)
Maricann Group Inc Separating Itself From The Junior Cannabis Pack (operationally speaking, this has occurred. Wayland Group is anchored in more countries than any market cap peer—and more than many above it. Prices haven’t reflected the build-out to date. Still plenty of room for Wayland’s story to play out)
Canadian Cybersecurity Firms Big Winners in Yesterday’s Federal Budget (BlackBerry and Hilltop CyberSecurity have fared poorly since the news came out, although for reasons independent of the announcement)
Canadian Cannabis Shakeout Giving Investors A Third Investing Lifeline (main thesis correct; both “undervalued” companies profiled were poor investments during the run)
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