While everyone’s inbox spills over with messages to be jumping into Marijuana stocks, from a technical perspective, these stocks are at an important pivot. The optimistic chatter suggests the USA national legalization of marijuana is the next wave to propel these stocks higher, but these stocks sit on the potential breakdown point. When stocks reach these important technical levels, technicians want to be aware of the potential for big breakdowns as well as big breakouts.
Canopy Growth Corp
Canopy Growth Corp (CGC) has been one of the big leaders in the space. As one of the first companies to go public and the first major name to list on the NYSE, it is important as a benchmark name.
A few reasons to be cautious on CGC.
- A significantly lower volume accumulation on the most recent price peak.
- The momentum is lower on the last two waves on the PPO
- If the PPO momentum rolls over and goes negative, the stock can accelerate lower
- The last few stochastics moves have rolled over quickly and this looks to be happening again.
- Price is currently trying to get above a previous high. When stocks have significantly lower momentum and volume as they test the previous high, be careful in case the stock breaks down quickly.
Medical Marijuana ETF (HMMJ.TO)
The Medical Marijuana ETF listed in Canada is also to watch. Consider this to be an average for the industry group.
- The PPO momentum is declining. Each peak is making a lower high in momentum.
- The PPO is close to failing and going below zero. This would probably mark major weakness.
- The volume is declining significantly. Each peak is accumulating less volume, suggesting less interest by institutional investors.
- If price failed here, we would end up marking a lower high and potentially a head/shoulders top. The momentum failing near zero is how final tops are usually put in.
- The relative strength shown in purple is close to rolling over here. When it does that, the price moves lower sharply as the investors in growth stocks flee if the ETF starts underperforming other indexes like the S&P 500.
Lastly is Cronos (CRON). This is one of the strongest stocks in the space. While it still looks relatively strong, there are a few things to be wary of.
- The parabolic surge in relative strength shown in purple usually ends badly. If the trend line in relative strength breaks, owners of shares should have some strategy to protect their gains.
- The back to back two-week volume surge would be bullish but it looks more like an exhaustion high after a significant run up in price. The second bar had higher volume but closed below the previous week, suggesting selling into the rally.
- The momentum shown on the PPO is making a higher high so that is bullish. In combination with the high- volume surge and the Full Stochastic indicator already rolling over, any weakness on the PPO would suggest the momentum is about to fade away. Use this to help confirm any new weakness in the stock. If the stock keeps accelerating, enjoy the ride.
- While CRON is one of the most bullish charts in the space, if the rest of the names roll over, be careful to have an exit strategy. Parabolic surges in relative strength, like that shown in purple usually retreat back to where the breakout started which is about 50% off the $25 high. If the broader industry rolls over, stronger stocks may take more time to roll over, but they usually follow as well
While these stocks could turn higher, they are showing early signs of caution. Enjoy the ride but my suggestion is to make sure a selling strategy is in place to keep the gains in this volatile industry group.
These opinions are not suggestions to buy or sell the stock, they are technical interpretations of the current price action. Only trade your positions based on your decisions.