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Marijuana investing has a bright, long-term future.
A lot of money will be made in marijuana stocks. Many investors saw the opportunity and bought marijuana stocks aggressively near the highs earlier this year. That was precisely the time when those following segmented money flows were selling into the strength. Please see: “The ‘smart’ money is telling Canopy Growth investors to be careful.” This column was published right near the top in marijuana stocks.
As marijuana stocks fell, those less informed kept on aggressively adding to their positions. After all, to them it made sense to buy because the stocks had become cheaper than when they originally started buying them. However, those following segmented money flows could have avoided the temptation because the smart money flows were negative.
When I wrote “How to potentially become a marijuana millionaire, albeit carefully,” a lot of money had been made in marijuana stocks by following segmented money flows. Now, marijuana investors are asking a number of questions. What is the real reason behind the latest selling? Is it short-selling or real selling? When will the selling stop? When will be the time to add to existing core, small marijuana positions? Let’s examine the latest marijuana money flows with the help of a chart.
Please click here for a chart showing segmented money flows in 17 popular marijuana stocks.
Note the following:
• Smart money flows are neutral in Aphria APHA, -4.48%, Canopy Growth CGC, -3.80% and New Age Beverages NBEV, -0.89%.
• Smart money flows are mildly negative in Aurora Cannabis ACB, -4.76% and Cronos CRON, -0.67%.
• Smart money flows are negative in marijuana ETF MJ, -2.70%.
• Smart money flows are negative in Acreage Holdings ACRGF, -8.33%, Curaleaf CURLF, -6.86%, Liberty Health LHSIF, +3.94%, MedMen MMNFF, -4.50% and TLRY, -3.16%.
• Among marijuana-related stocks, smart money flows are neutral in Corbus Pharmaceuticals CRBP, -1.70%.
• Among marijuana-related stocks, smart money flows are negative in Craft Brew Alliance BREW, -0.24%, GW Pharmaceuticals GWPH, -2.04%, KushCo Holdings KSHB, -9.68%, Scotts Miracle-Gro SMG, +2.93% and Constellation Brands STZ, +0.93%.
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The big change in marijuana stocks is related to momo (momentum) crowd money flows. The momo crowd kept on buying these stocks aggressively as they fell. A while ago we shared with our subscribers in the Morning Capsule that momo crowd money flows had turned negative. Unrealized losses simply became too big for the momo crowd. They could not take it and started selling. Many were getting margin calls and were forced to sell.
A short squeeze occurs when short-sellers either panic or are compelled to buy to cover shares that were previously short sold. This leads to a lot of artificial buying that is not based on fundamentals.
Often the trigger for a short squeeze is good news, even if it’s only slightly good news. Marijuana stocks are especially prone to short squeezes.
The chart shows relative the rankings of the five select popular marijuana stocks. These rankings are based on the six screens of the ZYX Change Method.
Risk-adjusted rankings are more useful for medium- and long-term positions. Non-risk-adjusted rankings are more useful for short-term and trade-around positions.
What to do now
There are millions to be made in marijuana stocks. However, these stocks are volatile. Volatility will cause many to lose their shirts. Segmented money flows are the best tool to navigate marijuana investments.
Those who believe in the long-term future of marijuana may consider bringing some sophistication to their investing. The foundation of such sophistication is to build small core positions for the very long term and then surround them with shorter-term trade-around positions. It is also important for investors to pay attention to Arora’s 14th Law of Investing and Trading: “To be successful at investing and trading, become a master of position sizing.”
We update investors on smart money flows and momo crowd money flows in marijuana stocks daily. Investors would want to see strong negative momo crowd money flows before considering buying. When momo crowd money flows become strongly negative, it will indicate that the momo crowd selling is almost finished. Further, investors will want to see smart money flows turning positive.
In the interim, technically, marijuana stocks are very oversold. When a group is very oversold, it can easily bounce. However, the bounces are not likely to be sustainable unless money flows shift as described above.
Please also read:
Marijuana investors may lose 90% of their money in Canada, so consider the really big prize elsewhere
Creeping complacency in marijuana-stock investing is a possible warning sign
To invest successfully in marijuana stocks, avoid this one thing
How to survive marijuana stocks’ rollercoaster ride
Tilray is the poster boy of short-squeeze stock candidates — here’s how to find others
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.