Get Set For a Great Buying Opportunity for Marijuana Stocks

Major Blast Up for Marijuana Stocks on Horizon

While the marijuana sector is in high-growth mode, the same cannot be said for marijuana stocks, which have been under attack on the charts over the past three months.

Analyzing pot stocks is not based the fundamentals, as the majority of companies in the marijuana space are currently spending huge amounts of capital expenditures on building their infrastructure, which ultimately cuts into margins and adds to the losses.

The current selling pressure in marijuana stocks has been triggered by a move away from the risk on trade, as the macro environment grows riskier.

Simply put, traders are dumping high-risk pot stocks, instead desiring the increased safety of large-cap stocks and bonds.

Moreover, we are seeing mixed results from the pot companies—namely lower-than-expected sales and higher costs that impact the pathway to profits.

In reality, some pot companies will face a cash crunch and could find it more difficult to raise capital.

Some pot companies will be taking over by the bigger players, as I expect a period of consolidation in the marijuana sector that will flush out the weaker pot companies.

Technically, you can see the current flush amid the marijuana stocks.

The majority of marijuana stocks have plummeted to near their 52-week lows, with signs of moving lower.

But while the near-term technical picture for the marijuana sector is neutral to bearish, like any sector sell-off, I do expect a relief rally based on the oversold technical conditions.

There are or will be aggressive opportunities to pick up good marijuana stocks at cheaper prices.

Near-Term Technical Picture Looks Shaky, But. . .

A look at the widely followed Horizons Marijuana Life Sciences Index ETF (TSX:HMMJ.TO) displays the carnage ravaging marijuana stocks.

The exchange-traded fund (ETF) includes the majority of the leading and up-and-coming marijuana stocks, hence it’s a decent barometer of the marijuana sector.

From a technical viewpoint, the ETF is currently threatening to retest its December 23rd low of $13.43 and is down 44.3% from its 52-week high of $27.00 on October 16, 2018.

Chart courtesy of StockCharts.com

The chart shows the ETF moving into a bearish “death cross” at around $18.00 in June—a situation when the 50-day moving average crosses below the 200-day moving average.

In this chart formation, the group of pot stocks in the ETF are witnessing excessive near-term selling pressure that drives prices lower.

Unless there is a recovery in buying, the ETF could slip lower towards the multi-year support at around $14.60 to the December low.

Analyst Take

So, while the near-term technical picture looks precarious, my view is the market uneasiness is not a surprise, given the newness of the marijuana sector.

Longer-term, the expected strong demand for marijuana, especially in the U.S. market, will provide the catalyst for much higher moves in marijuana stocks.