I have been getting a lot of emails from marijuana investors who are trying to understand the real reason behind share prices falling off a cliff. It is never easy for investors when the stocks they are holding fall precipitously.
On the positive side, you are seeing the first pointer given in “How to potentially become a marijuana millionaire, albeit carefully” coming into play. Astute marijuana investors will take advantage of the drop and may end up making money in the long run. Let’s explore the real reason for the decline in marijuana stocks with the help of a chart.
Please click here for the updated chart showing money flows in marijuana stocks.
• At The Arora Report, we address marijuana every day before the market opens in the Morning Capsule. From the Morning Capsule: “We have been sharing with you that marijuana stocks are high-beta stocks. In plain English, this means that they move a lot. The momo (momentum) crowd is aggressively selling marijuana stocks. Overall, smart money flows are negative but on down spikes there is light buying from smart money in select marijuana stocks.”
• It is important to understand the most important concept: Marijuana stocks move based on what happens at the margin. At the margin, there are two kinds of players: smart money and momo. The chart above separately shows momo money flows and smart money flows. We have been sharing with you for a while that the smart money has been selling marijuana stocks into the strength. We also gave a signal to sell trade-around positions in marijuana stocks at the top.
Until recently, buying by the momo crowd was much stronger than selling by the smart money. In a prior Morning Capsule, we said: “A big difference from the past is that the momo crowd is not aggressively buying marijuana stocks.”
Since there was no momo crowd buying, selling from smart money initially drove marijuana stocks down, but not by a lot. Then the momo crowd panicked and started aggressively selling. With both momo crowd and smart money selling, there were several technical breakdowns. A lot of money is tied to technical trading on Wall Street. Such money started selling on technical breakdowns, making the drop worse.
• Smart money flows are only mildly negative in Aurora Cannabis US:ACBFF ACB and Canopy Growth CGC.
• Smart money flows are extremely negative in Tilray TLRY and marijuana ETF MJ.…Read more at MarketWatch.
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