Marijuana stocks are hot again.
As share prices rise, the crowd gets more excited. Once again, the belief is spreading that all one has to do is to buy the hottest marijuana stocks and cash in.
This could not be further from the truth. Investors are forgetting that marijuana stocks can be very volatile. When I wrote “How to potentially become a marijuana millionaire, albeit carefully,” the most important word in the headline was “carefully.”
Some will make millions in marijuana stocks, but many more will lose their shirts. Let’s examine this issue with the help of a chart.
Please click here for a chart comparing marijuana stocks Aphria APHA and Tilray TLRY. Please note the following:
• The chart shows when the Arora buy signal was given. Using Arora Trade Management Guidelines, the average buy price was $4.21. Hindsight shows that the buy signal was given close to the bottom. Aphria is trading at $10.67 as of this writing.
• The reason the chart compares Aphria with Tilray is that the Arora call was to buy Aphria and sell Tilray for the medium term. Please see “Buy the previous ‘don’t touch’ marijuana stock and sell the darling.” At that time, Tilray was the darling and everybody was selling Aphria. My call was an unpopular contrary call.
• The chart shows that the contrary call made a 143% performance difference in a short time.
• Aphria is moving up on hopes of a higher buyout offer.
• Cronos CRON is one of the strongest marijuana stocks as of this writing. Interestingly, The Arora Report made a call to buy Cronos just before it received a major investment from cigarette maker Altria MO. This call produced large gains in a very short time. The call to buy was made at $9.41. Cronos is trading at $22.41 as of this writing.
• In addition to Cronos and Aphria, there are several marijuana stocks in our diversified marijuana portfolio. They include Canopy Growth CGC and New Age Beverages NBEV. Please see “If you buy only one marijuana stock, this should be it.”
• Marijuana stocks have once again become uncorrelated to the Dow Jones Industrial Average DJIA, S&P 500 ETF SPY and Nasdaq 100 ETF QQQ.
The real reason behind the runup
The real reason behind the recent runup in marijuana stocks is 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…Read more at MarketWatch.
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