Ted Ohashi's Marijuana Stock Market Review & Outlook
As frequently happens in the stock market, investors anticipate good news well ahead of the fact and sell in advance. That seemed to be the case as President Trump headed off to the G20 meetings and his widely anticipated meeting with China’s President Xi Jinping. The expectation is they will find some way to end the trade war that has been taking place and is now beginning to impact world economies. In Canada, stocks had been buoyed by the rally in gold prices but seemed to take a breather ahead of the holidays in Canada and the U.S.
As I indicated, the cannabis stocks remained weak and declined for a ninth week in a row based on the LTB Marijuana Composite Index. However, there was an improvement in the background indicators. First, the momentum which had been leading cannabis stock prices lower, levelled off. For the first time in many weeks, cannabis stock prices and momentum moved in accord. In addition, as can be seen below, the Licensed Producer group was able to post a small gain.
As the chart above shows, the Licensed Producer group was able to buck the trend and post a small gain. The Low-Priced stocks, however, continued their pattern and continued steadily lower last week. This is also a positive combination as I have indicated several times in the past. Strength in the higher quality LP stocks is a positive and as I use the Low-Priced index as a measure of investor psychology, the extended decline indicates optimism is being slowly squeezed out of the cannabis stock markets.
The charts below are derived from the Marijuana Indexes owned and managed by MJIC. The chart below left that plots stocks with the majority of their cannabis business in the United States was able to post a small gain last week and the chart to the right shows the U.S. group outperformed their Canadian counterparts by a healthy margin.
What this means is with respect to the cannabis stocks, we are doing the right thing. In the financial markets, today’s stock prices do not always provide an accurate measure of today’s stock value. But if we are persistent and continue to do the right thing, we will be rewarded. So I encourage you to continue on the path we are on knowing that our confidence will produce above average long term returns.
This chart shows that the LTB Marijuana Composite Index has now declined for nine consecutive weeks. This is the second longest uninterrupted stretch of weekly declines in the five plus years the index has been calculated. Given the developments this week, it is my expectation that a turn up could come very soon – perhaps as soon as next week. This may prove to be a brief rally in a downtrend but we don’t need to consider that at this time.
Conclusion: it is important to understand that short term trends in the stock market are extremely difficult to forecast. But every once in a while, there are enough indications to suggest a change might be in the offing. That is the case as I see it right now. So I believe this is a good time to initiate a position or average down a holding in the following names: 1933 Industries (CSE: TGIF) (OTCQB: TGIFF), Cannabis Growth Opportunity Corp. (CSE: CGOC), Khiron Life Sciences (TSXV: KHRN) (OTCQB: KHRNF), Lexaria (CSE: LXX) (OTCQX: LXRP) and Sunniva (CSE: SNN) (OTCQB: SNNVF).