Charting Man Dan on Cronos Group Inc’s (TSE:CRON | NYSE:CRON) Monthly Bull Volume
The Chart Guys founder and analyst Charting Man Dan McDermitt discusses how the internet has empowered investors to take greater control of their financial futures. He explains that the funnel effect, which drove profits in the early days of the cannabis space, is gone. McDermitt notes that fundamentals matter significantly more right now than in previous years and are causing dramatic reactions to individual names in the space. Charting Man Dan highlights that recent S&P 500 consolidation provides a good entry point for investors looking to take positions in the cannabis space. He breaks down SPY’s latest moves and emphasizes key support levels for the index. He addresses how Canopy Growth Corp’s (TSE:WEED) (NYSE:CGC) (FRA:11L1) recent consolidation mirrored action in the S&P and discusses the possibility of CGC forming a weekly higher low. Charting Man Dan indicates that cannabis stocks now have longer-term ranges and explains Cronos Group Inc’s (TSE:CRON) (NASDAQ:CRON) (FRA:7CI) high bull volume on its monthly chart means for investors.
Fraser Toms: Hey, we’re glad to be joined by Charting Man Dan – Dan McDermitt of The Chart Guys. He is in Asheville, North Carolina, right now. How’s it going, Dan?
Dan McDermitt: Very good, glad to be back.
Fraser Toms: Yeah, so we were just chatting just a little bit. Just out of curiosity, I was sort of asking you how you got into trading in the first place, because you’re – as you were saying, it probably helps you’re not a typical suit and tie Wall Street guy.
Dan McDermitt: Definitely. We’re entering an age with internet and technology where people, especially in the cryptocurrency space as well, but people now have more control of their financial freedom. And back ten, twenty years ago, it was, this stuff’s too hard, I can’t understand it; I’m going to give my money to somebody who specializes in it, and let them do their thing.
And then we had all the disasters and all the crashes and people saying Hey, maybe they don’t know what they’re doing so much, and I have the internet here at my fingertips; I can learn how to do anything I want. And trading and investing has become one of those avenues where people can empower themselves.
So yeah, certainly not the suit-and-tie, fancy car analyst that a lot of people are used to, and I think that allows for a lot of people to connect to a certain degree and say hey, this person’s a lot more like me than that person is, and if they can do it, maybe I can do it as well.
So fortunately, connecting with a whole different group, a whole different sort of person who has been, perhaps, excluded from what previously would have been the financial markets.
Fraser Toms: Yeah, for sure. So was it just the opportunity to have more financial freedom, or was there something about charts and stocks that sort of grabbed your attention and made you get really into it?
Dan McDermitt: Both, but it definitely started with freedom. I watched my dad growing up commute into a city for 45 minutes to and from work every single day, and I did not want to do that. I did not want a desk job. I was in college for business management, and I was on that path, and didn’t learn a whole lot about stocks, but I saw the opportunity, honestly, seeing the shift in the US as states started to do their own thing with marijuana laws. And really, it was California in 2010, which failed to legalize, but that’s when things really started to pick up, and I said to myself, Okay, there’s huge opportunity. I was reading about industrial hemp, I was reading about CBD, I saw that opportunity, and I had two paths that I was on: I was either going to go to Canada and learn from you guys – you guys had a decade head start on industrial hemp, and I wanted to be in the field. We were talking about how I was a bit of a farmer as well. So I wanted to learn the plants, and I said, All right, I’m either going to Canada to learn how to grow this industrial hemp for when it’s legalized in the US, or I’m going to look at the stock market.
And I started playing in the stock market, and that, I just fell in love with it in terms – it just works really well with my brain, the way my brain works. I’ve always done well in school in that kind of disciplined, western learning style, and that’s definitely translated into being able to understand the charts and the way things work a lot easier.
Fraser Toms: So yeah, that’s awesome to hear. And knowing all that, I’ve said to some colleagues around here, we’ve entered a time in the last little while where it seems, at least to me, where it’s a lot harder to make money in this space. Maybe it’s because there’s a lot more names out there, maybe it’s because there’s been a divergence away from sort of the leaders and other stocks are sort of running on their own. What’s your take on what’s going on right now?
Dan McDermitt: Yeah, that’s definitely a lot to do with it. I call it the funnel effect, and when I first started trading stocks eight years ago, it was eight different penny stocks, and marijuana penny stock companies; that was it. So if we had any kind of bullish news or anything, if you googled anything about marijuana stocks, only these names came up, because that’s all that was available. And that funnel effect allowed it to be easy to make money, because if you’re in one of those names and money is going to come into the sector, it’s going to bring all of those names up.
But you are right: Now that funnel effect is gone, and now there’s 100, 200, however many tickers to be watching, and we have these scenarios where an individual name will run and we’ll have groups pump it and try and make their money real quick, and there’s a lot more moving parts going on right now, and it’s a lot harder to keep track of it all in terms of determining where to put your money. We don’t have the same scenario as we did a year or two ago, where the rising tides raised all the ships. And that’s for fundamental investors and traders, that’s honestly ideal in the sense that now those fundamentals are mattering a lot more and the weaker fundamentals or the drama in management is causing bearish reactions in individual names, and the cream is rising to the top as far as our sector leaders.
Fraser Toms: Yeah. So what are you looking at right now, and what’s sort of grabbing your attention? You sort of have a stable of names that you always kind of look at, so what’s kind of caught your eye in the last couple of days, let’s say?
Dan McDermitt: Well, we finally started seeing consolidation in the S&P 500, which is what I’ve been waiting for, because every single time I’ve looked for a bullish position in the MJ space, in the back of my mind I’ve always been saying to myself, okay, this move from the December lows is insane; what’s going to happen to the sector when we get SPY weekly consolidation? And now we have that SPY weekly consolidation, and we can say, Okay, this is what’s happening. And the best time to buy marijuana stocks, whether it’s Canadian or US, in the recent past, has been the December dump, when things were their bleakest.
So now, after this multiple-week pullback with all the drama between China and the US and the trade deal and the falling out, this is potentially an opportunity. So I personally, if I’m looking longer-term, and for me I’m looking in the US sector for longer term; I feel there’s better risk-to-reward opportunity there as the laws continue to shift – but I would much rather be buying in weakness than buying into strength if I’m looking long term, just because I know that I would much rather be sitting on a position that has been pulling back significantly as opposed to a position that has been running significantly, and if I’m buying at the wrong time, I might have to sit through a whole bunch of red when it then begins to pull back, if we get market weakness.
So I welcome this market weakness to a certain degree, and the question now is, can we keep the weekly uptrend of the S&P 500, and we’ll go over that in just a minute.
Fraser Toms: Yeah, that sounds good. The only thing I would say to that or think about as well is, the trade talks, you know, that’s an ongoing thing, and also the – it may not apply as much anymore, but this seasonal mentality of sell in May and go away. So I’d just be looking for, is this the worst yet, or is there still more to come?
Dan McDermitt: Well, today did a good job for the bulls to alleviate some short-term concerns, and it’s honestly a market that’s run by tweets and headlines right now, and a tweet or a headline comes out, and you just watch the bots and the automated trading instantly react to it, and it’s the kind of scenario where you have Trump and the administration doing everything they can to keep the stock market propped up, and you have China wanting the stock market to get hurt, because they know that that puts more pressure on Trump.
So it’s this battle, it’s this trade war, that is using markets as well, and it can definitely get worse. So you know, we have to have a game plan, and the best game plan for establishing longer-term positions is doing it slowly. You don’t want to put all your money in and then that’s it, and you hope you nailed the bottom. You want to be adding, maybe, a little bit a month, a little bit every couple of months, whatever it is, to get an average cost basis, and if we do see continued weakness, that allows you to potentially lower that cost basis a lot. If you’re investing based on fundamentals and you’re looking longer term, multiple years out, and looking for that shift in the laws in the US.
Fraser Toms: Okay, awesome. Well, speaking of different terms to be investing, why don’t we have a look at some charts and see what’s going on?
Dan McDermitt: So here’s the S&P 500, as always, the backbone of our analysis. We want to know what the general, broader market is doing, and then we want to see how the sector is responding to that. Then when the sector has been its strongest in the past couple of years, the S&P 500 has been at all-time highs.
So where we stand right now, again, we’re in a market that is completely subject to tweets, and a tweet saved the bulls today. We started with a very weak pullback, we had a weak bounce on the daily time frame, and we opened lower than the low of yesterday. But a tweet came out that said Hey, maybe Trump’s not going to raise these tariffs on autos and, you know, a little bit of backtracking from the US, which further leads to a narrative of maybe they’re getting closer to a deal because the US is being less hard-headed and willing to, you know, comply a little bit.
Either way, we have seen a big shift in momentum from that tweet, and that tweet alone did it, looking at the five-minute time frame, you can see where that tweet happened. Don’t even need to point that out, but if you’re struggling, there’s the volume, there is that tweet; look at the actions since the Tweet.
So we have the four-hour time frame, which I like for clarity because it shows a clear little trend change with a higher low and then a higher high breaking the high of yesterday, and we have to keep in mind that the S&P 500 is in a weekly uptrend. The support level to hold was 27764, and we held that level right now. So as long as the weekly uptrend is on track, the bulls have control. If we lose this weekly uptrend, it completely shifts my perspective on the market on the whole, and it would make me a lot less cautious as a bull. But right now, the bulls are buying the dip while maintaining the weekly upturn, and the question is, can we see a clear change in trend?
What really has been happening is, the pattern is, we get weakness in extended hours when some kind of news articles comes out, and then the bulls do most of the buying during the day. You can see on this big pullback from the all-time high, we have pulled back in the S&P 500 five percent, but we’ve only seen really two clear red days. Most of the days a re lower opens with bulls buying that dip. So I’m still holding out for the bulls to keep the weekly uptrend, which would be best-case scenario for the sector as a whole.
Watching CGC now, CGC is just breaking a pattern where we had a lower high every single day of trading for 10 days in a row. That has now changed. So let’s see if now, weekly time frame, if CGC is forming a weekly higher low. Again, it’s no coincidence that we have three weeks of pullback here, and SPY on the weekly timeframe here, three weeks of pullback. So if SPY has formed its weekly higher low and is heading back to all time highs, we’re going to anticipate that CGC has formed its weekly higher low and it’s going to head back up to the recent top in the 52s.
So bulls want, the more follow-through the better to try and make this move convincing and see some volume show up, so we’ll certainly be watching that as the sector leader. ACB bulls doing a huge job today of buying the gap back down open. We had CNBC pumping a narrative that TLRY is surging on earnings; here we have TLRY down significantly this morning, and ACB, which started down, is now seeing a huge bull move to the upside. This is the highest price for ACB – I might have just said CGC, but I’m referring to ACB – highest price we’ve seen here in the last four days. And the question now is, can ACB form our monthly higher low?
So it’s all about longer-term time frames, and we see now that we have a tightening range and the bulls on ACB, if this can be our monthly higher low and then the bulls break 10.32, that would be very notable. And look at the CGC monthly time frame and how similar that is. We had a tightening range, we had a brief consolidation, and then the bulls did break to a higher high. Having gotten that follow-through yet, but that little two-week consolidation into the bull break, and looking at ACB now, there’s our two-week consolidation, can we lead into a bull break is the question?
I’m also watching the CRON monthly time frame, and I do have a CRON swing position because I like this monthly chart. You look at the weekly or daily chart for CRON, and we’ve been pulling back for a significant amount of time. But you look at this monthly chart, it’s low bear volume, high bull volume, which is exactly what the bulls want to see. We’re looking at just a higher low forming. I use the 12 period exponential moving average as a visual guide; I actually brought that over from the cryptocurrency space after I had so much success with it there, and now I’m liking applying it to stocks as well. But that’s just a visual guide to see every single time this chart has consolidated in the history of the stock, we have held that support level. And we just bounced off of it, which is why I made an entry on CRON when the daily RSI was oversold.
Need a lot more follow-through to be convinced in that shift in momentum, but if the SPY bulls can head back to all-time highs, that will increase the odds significantly that our monthly higher lows have formed on a lot of these names.
So that’s it for the Canadian MJ sector; I’m still watching the US MJ sector. We do still have a bunch of names still in pretty strong uptrends overall, and again, more so have to do that due diligence in the MJ sector. We’ve had some negative news come out for TRUL; we’ve had MedMen, and that’s Trulieve – MedMen has certainly had some bearish reaction to its fundamentals and its management that the market is perceiving poorly. So if looking for long-term US MJ names, make sure and pick a few names that not only have some strength on their charts, but certainly want that fundamental backing, because we might need to hold these names for a year or two if we’re looking long-term and we want to capitalize on changes in laws, it really might take a while. So we have to find those names that have the solid backbone of fundamentals, and then hopefully the technicals follow through with that, as well.
Fraser Toms: Awesome, thanks so much, Dan, once again, for coming on the show and doing a bang-up job.
Dan McDermitt: Appreciate it. See you next time.
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.