Pot Stocks: Why the Marijuana Market Is Still Slumping – Profit Confidential

iStock.com/smileitsmccheeze Pot Stocks Rebound, Then Give It All Back

For investors playing the marijuana market, everyone is watching for the industry-wide correction to abate and be replaced by a rally. If the rally is even half as good as the run-up to 2018, we’re talking massive double-digit gains in the near future. The problem for pot stocks is in determining when that rally is going to take place.

In the past week, major marijuana companies like Canopy Growth Corp (OTCMKTS:TWMJF, TSE:WEED), Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB), and Aphria Inc (OTCMKTS:APHQF, TSE:APH) rose by several percentage points each.

APH stock and ACB stock both jumped nearly 10%, while Canopy stock showed more modest gains.

But just as quickly as those gains came, they evaporated, leaving the share prices down significantly.

All three stocks were down double-digits in the first week of April, with Canopy stock taking the worst hit, with a near 20% fall. Aphria stock fell 12% and Aurora stock fell 15%.

What does this mean for the marijuana industry outlook? There are a couple of key takeaways for investors.

The first takeaway is to beware false rallies. Just because stocks jump upward by five percent or 10% in one day does not mean that the industry slump we’re experiencing is necessarily over.

With investors being particularly cautious after the massive downturn that started in mid-January, which hasn’t let up, what you want to see is prolonged and sustained growth before declaring the slump over.

The issue is that you’re contending with day traders who will see the big daily jumps as opportunities to short or even get out of the stock altogether, taking their winnings and going home. The volatility of the sector makes these types of plays not uncommon.

Chart courtesy of StockCharts.com

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