2019 was a very ugly year for cannabis investors, no wonder, the stocks were only going down, while the overall market was going up. Is this going to change now or is the cannabis investing doomed?
Last year was a game-changer in many stock portfolios. Investors started to be more cautious, they have lowered their risk appetite, which resulted in an investment in safer stocks. Since bonds are not paying much, people opted for rather dividend stocks, utilities, real estate, and gold-related businesses.
The marijuana business is still young and hence risky. The overall marijuana index was going down with no sign of reversal and therefore I did not write anything for a long time. However, now there seems to be a first sign that this market has likely bottomed.
I have recognized a changing trend principle using a moving average model in the past. As a benchmark, I took a well-known ETF – HMMJ.TO. As you can see below, the price was pouring down for a year bringing nothing else just disappointment to the investors. Finally, the price has stopped the fall and reverted breaking up the 9, 20 and 50 moving average – supporting the concept of a change of this trend.
So far, this model worked very well, see here how we have identified 2019 consolidation right before it happened.
9, 20 and 50 Moving Average Model
- When the ETF is in a bull market, the price is sliding 9-period EMA. A 20 period EMA serves as a stronger support level and when this is broken down, the ETF happens to be in a bear market.
- When the ETF is in the bear market, the 9-period EMA serves as a resistance level and if there is an attempt to break it up, the 9-period EMA must cross 20-period EMA to bring the ETF into the bull market. This is the case now!
- The 50-period SMA was introduced now as I can see that it must be also pierced up if we want to make sure that current BREAKOUT is not a FAKEOUT. The price has closed just below this level. Thus, it may need some more adjustment retracing back toward 20 EMA before it goes up again.
The fact is that currently price really pierced up, however, the volume is not significant enough to say that this is a clear reversal. I would like to see the price to hold for longer before it goes up again. Maybe some sideways trading too.
It is important to pick good trendy stocks if you want to go with the trend and thus, trade profitably. The cannabis industry is going to kill 50% of companies, maybe even more, and hence stock picking is a crucial play.
Below is a famous Canopy Growth, for which I am tracking its pattern history that you might have seen before here on tradeviatrend.com. The traders may find a 20 EMA as a good tool when the price is below the stock is in a bear market, when it’s above the stock is in the bull market. Recently the price broke up above 20 EMA and slides it up, which may be a good signal for next bull turn. It’s too early to say, but maybe we are experiencing a next rising channel.
There are many other good marijuana stocks that are not part of HMMJ ETF and may explode in the future, however, this is a risky game. The ETF can show you the direction and current status due to its qualitative content of holdings. I am watching now such stock, with very interesting potential. I will release a separate article about it in the next days. Thus, feel free to sign up for notification if you wish.
Stay disciplined and focused on the big picture! If you like this article, please share it using the below buttons or any other way you wish!