STOP BEFORE YOU BUY MARIJUANA STOCKS ON LOVE FROM FIVE PRESIDENTIAL CANDIDATES AND MARTHA STEWART $ACB $CGC $CRON $MJ $TLRY $APHA $NBEV $MMNFF $CURLF $ACRGF $SPY $DJIA $QQQ

Many investors see a big opportunity in marijuana.

Alas, it is not as simple as buying a handful of marijuana stocks on good news. Often it backfires and investors lose money on the ensuing volatility. When I wrote “How to potentially become a marijuana millionaire, albeit carefully,” the most important word in the headline was “carefully.”

Sen. Cory Booker, a Democratic presidential candidate, is reintroducing a bill that would legalize marijuana at the federal level. Four of his fellow presidential candidates, Sen. Elizabeth Warren, Sen. Kirsten Gillibrand, Sen. Kamala Harris and Sen. Bernie Sanders are cosponsoring the bill.

Martha Stewart is teaming up with Canopy Growth CGC to develop and market a line of CBD products. The Arora Report previously identified Canopy Growth as the top pick in the marijuana space. Please see “If you buy only one marijuana stock, this should be it.”

This is good news. The long-term future for marijuana stocks is bright. Then why not back up the truck and buy marijuana stocks as a long-term investment? Also, what should you do with the marijuana stocks you own now? Should you trade them for short-term gains? Let’s explore with the help of a chart.

Chart

Please click here for an annotated chart of Cronos CRON.  Please note the following:

• The Arora Report gave a buy signal before the runup. The buy signal is shown on the chart. Cronos is one of the eight stocks in The Arora Report’s marijuana portfolio.

• The chart shows RSI (relative strength index) divergence. In plain English, this means that as the price has gone higher or continued to levitate higher, RSI has gone down. Since RSI is not yet oversold, this situation is interpreted as a high-risk situation.

• The chart shows that a big part of the rise has been a short squeeze, according to the algorithms at The Arora Report. In a short squeeze, investors who previously sold short are either forced to buy to cover their shorts or feel compelled to buy to cover at higher and higher prices. Such buying is artificial buying and not buying based on fundamentals. In the stock market, there are not many things we know with certainty. However, we know with certainty that short squeezes eventually end. When they end, the stocks fall.

• The chart shows the Arora signal to hold core positions but take partial profits on the rest.

Winners and losers

Some will make millions in marijuana stocks, but many more will lose their shirts. Here is what will separate the winners from the losers.

• Winners respect risk. As shown on the chart, there is high risk in Cronos stock now. Somewhat similar conclusions can be drawn from the charts of Tilray TLRY, Aurora ACB, Aphria APHA and marijuana ETF MJ, +0.08%.

• Winners buy on pullbacks for the long term….Read more at MarketWatch.

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