Weedstocks Next Rally Will Be Technically Triggered

Benjamin A. Smith

Without question, it’s been a most frustrating time for weedstocks investors. The Canadian market—as represented by Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ)—has descended for six straight weeks with stair-stepping synchronicity. It’s left many investors wondering what it will take to pull the market out of its stupor. The answer, we believe, resides in the technical picture.

The reason for this assessment is plain as day. Quite simply, the market is not responding to the multitude of macro catalysts thrown its way. Whether we’re talking about the first E.U. country to legalize adult-use cannabis, major ASEAN countries approving medical cannabis, Farm Bill passage and more, nothing is moving the needle. Literally, a dozen or more significant macro catalysts have presented themselves this month, only to be disregarded or sold into by jittery investors. As most individual Canadian LPs are trading lower on the year, tax loss harvesting is undoubtedly exacerbating the situation.

Material individual company news is also not having the desired effect. There are numerous examples we cite, but yesterday’s price action in Green Thumb Industries sticks out… like a sore thumb.

Yesterday, the U.S. multi-state operator (MSO) secured 4 of 23 (17.39%) new licenses in the state of Pennsylvania. Each license allows Green Thumb to open an additional three stores statewide (12 total). Just these licenses alone—without any other operational or jurisdictional consideration—would double the size of the company’s dispensary footprint as recorded on their 3Q 2018 income statement. The market’s reaction on the news? Exactly what you would expect in a raging bear market.

After rising ↑13.38% early in the session, GTII lost momentum and finished lower on the session (↓1.63%). One of the company’s best announcements since going public became another casualty of the immense dysphoria entrenched in the sector today. This, despite zero run-up before the announcement, which was clearly not priced-in by an invisible hand.

Thus, it should be crystal clear at this point that any sustainable counter-rally in weedstocks must be technically-induced. Where macro and individual catalysts fail to engage, investors/swing traders must rely on technical cues to gain entry.

Final Thoughts

Although it’s unclear when & where the point resides, we’ll continue to scour the charts looking for answers. Obviously, broad market stabilization is a pre-requisite for such launching point. With the NASDAQ-100 index (QQQ) currently trading above the February volatility washout lows, holding this level could serve as an important risk assets counter-rally springboard heading into Q1 2019. I’m waiting for confirmation that the February lows hold—and possible false breakout reversal to the downside—before making any determinations.

Unfortunately the S&P 500 has decisively broken these lows, muddying the broad technical picture in the short term. It continues to be a fluid situation.

The good news is that when broad market stabilization occurs, weedstocks should follow in an outsized capacity. The market has a very clear history of rising and falling to much greater degree than the broad market. With weedstocks cratering about 4-times faster than the S&P/TSX 60 index over the past three months (approximately 2.50-2.66-times SPY, QQQ), the rebound will be something to behold.

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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