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Cannabis Technical Trader Newsletter for February 26, 2017

February 27, 2017

 

This is a free preview of The Daily Marijuana Observer's Cannabis Technical Trader Weekly Newsletter. 

 

Weekly Backdrop and Cannabis Market Commentary

 

Cannabis industry equities rose early in the week, peaking out at a new MJ-48 index all-time high (ATH) of 66.51 on Wednesday morning before selling off sharply through Friday morning. This resulted in a net loss for the week of -7.65%, rather a disappointment right in the wake of a fresh ATH. However, the monthly cycle still appears to be 'up' and with the modest rebound seen on Friday afternoon, the next two trading sessions of February may very well allow for a net monthly gain. I found it interesting to note that the big post-ATH sell-off coincided with remarks made by the White House press secretary on the topic of marijuana legalization.


My own 'MJ-48 Index' of forty-eight low-priced cannabis industry stocks (all listed on the US exchanges, some on the Canadian exchanges using a different ticker) proves helpful in determining the overall price cycle action, trend and performance of these highly volatile stocks and is presented below; here are the US ticker symbols:

Figure 1.) The forty-eight component stocks in the MJ-48 index along with their 60-day correlation to SPY as of 2.3.17.

 

I ran a three-month (60 trading days) correlation analysis on the above stocks and was amazed to discover that none are closely correlated with the S&P 500 index (SPY); this simply means that this collection of cannabis stocks isn't really affected by the normal day-to-day fluctuations and minor corrections/rallies in the broad US markets. While it's always a good idea to be aware of the cycles and trend in the S&P 500, most cannabis stock investors and traders won't have to base their primary buy/sell decisions on its current price action the vast majority of the time. (A value of 1.00 indicates 'perfect' correlation and a value of (1.00) indicates 'perfect' inverse correlation. All the above stocks are easily in the 'non-correlated' zone at this time.) Once a month, I'll refresh the correlations and you'll be able to see which of your favorite cannabis stocks from the index are least 'connected' to the typical daily price fluctuations in the S&P 500 index.

 

Several sub-sectors are represented in the above list to ensure that no one sub-sector in too heavily weighted in the index. From time to time the index may be reconstituted if stocks are delisted or a better balance of companies can be constructed; here are the primary sub-sectors within the broad cannabis stock universe:

Weekly MJ-48 Index as of the close on Friday February 26, 2017:

 

Figure 2.) The weekly MJ-48 Index as of the market close on February 26, 2017. Created with TradeStation 9.5 and !QCL. MyIndex at http://tinyurl.com/go84oqh

 

 

The typical daily chart price cycle (measured trough-to-trough) on most liquid financial markets ranges from 14-24 price bars; the MJ-48 index currently is averaging about 17.50 bars between confirmed cycle lows and the index just put in a confirmed 18-bar (nominal or average length) cycle low on the 10th . No matter how good a technician anyone is, one can only determine exact cycle lows/highs with the benefit of hindsight; however, knowing the typical daily/weekly/monthly cycle lengths is certainly a big help when forecasting the most probable times for them to bottom, and when a daily/weekly or weekly monthly pair of cycles are anticipated to bottom in close sequence, that's when the highest reward, lowest risk time to enter the market is, including the stocks represented by the MJ-48 index.

 

As an example, let's say that I'm projecting the nominal 18-bar (18 trading sessions) cycle in MJ-48 to bottom very soon, especially since its already 20 bars since the last cycle low; you desire to start building a portfolio of MJ-48 cannabis stocks and so you look to buy a basket of the MJ-48s with the following characteristics:

 

A.) Stocks with high 13-week relative strength versus the SPY

B.) Stocks with high 13-week relative strength versus other MJ-48 stocks

C.) Stocks which are making a proportional pullback into their own cycle lows

 

There are thousands of ways to build an intelligent long-term stock portfolio, of course, but that's one simple and yet potentially effective way to begin to slowly build your own stable of low-priced cannabis stocks.

 

The weekly MJ-48 cycle chart above is now nine bars along in its nominal 18-week (bar) cycle; the price action over the next 2-4 weeks will likely confirm whether Wednesday's all-time high of 66.51 was the top of this particular weekly cycle or if there is still another ATH in the works before the nominal (average) 18-bar cycle exhausts.

 

** I continue to warn that a high-probability weekly/monthly cycle high is approaching in the S&P 500 index, and with the broad US markets continuing to make new highs, the following comments are even more timely.

 

Although the stocks we track here in CTT are not normally correlated with the S&P 500 index (using a three-month lookback), it still pays to know the cyclical phase of SPY; the index is now almost 15 weeks along in its nominal 16-week cycle, just as its monthly cycle is now nearly 13 bars along in its own 14-bar cycle. Many coincident indicators now suggest that March 2017 is a high-probability time period for SPY to top out in both of these key cycles; whether or not a significant correction occurs after the cycle highs are reached is anyone's guess, but it would be wise to monitor all open stock positions closely, whether cannabis-related or not. When a full-scale market panic commences and builds downward momentum, EVERYTHING suddenly becomes correlated with the S&P 500 index as investors dump good stocks and bad alike; sometimes these are mild 5% affairs, then you have the 'nail-biter' 8 to 12% corrections and then you have the extremely painful 25-50% wipeouts like we saw in 1973-1974, 1987, 2000-2002 and 2007-2009. Another big correction/bear market is coming, but only a fool would attempt to forecast the exact day or timing of such a key market event.

 

In time, at least some of the 175-plus currently available OTC cannabis industry stocks will go on to be listed on the NYSE or NASDAQ exchanges and may also offer put and call options; puts are a great way to hedge against a major wipe-out, but must be used sparingly and with great wisdom to gain the maximum potential benefit. We'll deal with call and put option cannabis stock strategies in the future as the market makes them available to us and it will open up many exciting and potentially profitable opportunities. Now for the most recent set of key MJ-48 index stats:

 

MJ-48 Index Key Performance Stats thru February 26, 2017

  • Last week's gain/loss: (7.65%)

  • Gain/loss since most recent confirmed daily chart cycle low on February 10, 2017:  + 18.31%

  • Gain/loss over the most recent three-month time frame:  + 37.61%

  • Gain/loss since inception on January 25, 2016:  + 86.61%

  • Gain/loss of S&P 500 index since January 25, 2016:  + 26.17%

  • Maximum all-time gain since inception:  + 122.82% on February 22, 2017

  • Max drawdown of starting value:  (41.95%) on August 18, 2016

  • Current hypothetical value* of $20,000 investment in the MJ-48 index at inception:  $37,322

  • *(hypothetical results do not include slippage or commissions and assumes equal initial dollar allocations in all 48 stocks)

Highest 13-week Relative Strength (vs. S&P 500) Tickers within Universe of Cannabis-Industry Stocks

 

Fig. 3) Highest RS cannabis industry stocks vs. SPY as of February 26, 2017. Created with TradeStation 9.1

These cannabis industry stocks are potential buy/add-on candidates on pullbacks to key, upsloping moving averages on weekly and monthly charts or you can simply trade the strongest ones with a close trailing stop, looking for more upside into a logical exhaustion or supply zone. For more ideas see my 'tips for trading' section at the end of the newsletter. (The 'HB' suffix is simply a TradeStation notification that the stock is on the 'hard to borrow' list for shorting purposes.)

 

Cannabis Industry Stocks Making Recent Volume Breakouts and/or 52-week Highs

 

These cannabis stocks may follow-through with more upside, so put these on your watchlist, looking for prime buy/add-on entry points:

 

Fig. 4) OWCP, POTN, VAPI and ETST (among others) rose on heavy upside volume for the week ending February 26, 2017. As of Friday's close, there were no new 52-week highs to report. Created with TradeStation 9.1

 

Previous Buy Setup Performance / Status

 

Note that all of the open trades have made available very nice potential profits ranging from + 21.58 to + 54.44% ... but you need to be able to pull the trigger and harvest such gains;  a good strategy is to take gains on at least half your shares when you see 20-50% spikes like these occur within one day of original entry:

 

FFRMF (previous ticker symbol was AGSTF):

 

Average entry price is .4203

Latest close: .3500

Open gain is (16.73%)

Maximum favorable excursion (MFE) so far is .5412 or + 28.77%

Trailing stop: .2370

Profit target: none yet

 

ATTBF:

 

Average entry price is .1813

Latest close: .1350

Open gain is (25.54%)

Maximum favorable excursion (MFE) so far is .2800 or + 54.44%

Trailing stop: .1270

Profit target: none yet

 

INSY:

 

Average entry price is 11.26

Latest close: 11.95

Open gain is + 6.13%

Maximum favorable excursion (MFE) so far is 13.69 or + 21.58%

Trailing stop: 11.26 (breakeven)

Profit target: none yet

 

NSPDF:

 

Average entry price is .3136

Latest close: .2900

Open gain is (7.53%)

Maximum favorable excursion (MFE) so far is .3778 or + 20.47%

Trailing stop: .2395

Profit target: none yet

 

New Buy Setups and Details for Week Ending February 26, 2017

 

Cannapharmarx, Inc. (CPMD)

 

Figure 5.)  CPMD just completed a major 16-week cycle low, accumulation is evident, momentum is rising and a bullish breakout could be coming soon; next supply zone is near 3.00. Created with TradeStation 9.1 ProfitTrader7 by www.walterbressert.com and XBP volume indicators by www.xbptrading.com

 

CPMD's Weekly Chart Features the Following Bullish Technicals:

 

  • The stock just completed a high-probability 16-bar weekly cycle low, one made as part of a major bottoming pattern.

  • A weekly cycle oscillator 'buy' signal printed at Friday's close, signalling that's it's time to go long.

  • Volume spiked sharply higher last week, up nearly 6x the average 50- day trading volume.

  • A clear, narrow-range consolidation pattern formed over the past year, and with the stock under technical accumulation and momentum rising, a bullish breakout now becomes the 'line of least resistance.'

  • Based on volume supply (resistance) and volume demand (support) analysis, CPMD smay be able to rise close to the 3.00 area before significant profit-taking kicks in.

 

Suggested Swing Trading Strategy:

 

Buy 1/3 @ 1.01

Buy 1/3 more @ 1.06

Buy 1/3 more @ .1.11

 

Initial stop @ .5500

 

If you get a sudden windfall gain of 20-50% within one day of entry, consider booking some/all of the gains and set your stop to break-even if continuing to hold.

 

Risk Control:

 

Risk no more than 1-2% of your account value on this trade.

 

Profit-Taking:

 

I will suggest logical profit -taking price points as the stock begins to move and these exit points should be acted on without hesitation. Be aware the 3.00 area will likely see lots of profit-taking, if reached quickly.

 

I will track the results (win, lose or draw) as the trade progresses; let's see how this one plays out.

 

India Globalization Capitalization, Inc. (IGC)

Figure 6.) IGC just fired a weekly cycle oscillator buy signal after the stock completed an important support test at a major cycle low; all momentum studies are turning higher, money flow is positive and the next supply (resistance) zone is near .6100. Created with TradeStation 9.1 ProfitTrader7 by www.walterbressert.com and XBP volume indicators by www.xbptrading.com

 

IGC's Weekly Chart Features the Following Bullish Technicals:

 

  • A major cycle buy signal just fired after completing a key support test; all key oscillators now rising.

  • The stock has strong long-term money flow, indicating continued accumulation.

  • Volume expanded by 900% compared to the previous week, with the stock gaining 54% coming out of the recent weekly cycle low.

Suggested Swing Trading Strategy:

 

Buy 1/3 @ .4900

Buy 1/3 more @ .5100

Buy 1/3 more @ .5400

 

Initial stop @ .2400

 

If you get a sudden windfall gain of 20-50% within one day of entry, consider booking some/all of the gains and set your stop to break-even if continuing to hold.

 

Risk Control:

 

Risk no more than 1-2% of your account value on this trade.

 

Profit-Taking:

 

I will suggest logical profit -taking price points as the stock begins to move and these exit points should be acted on without hesitation. Be aware the .6100 area will likely see lots of profit-taking, if reached quickly.


I will track the results (win, lose or draw) as the trade progresses; let's see how this one plays out.

 

Be Sure to Check Out my Tips and Tricks for Trading Cannabis Stocks Here.

 

Summary

 

That's all for this week; thanks for subscribing and don't hesitate to contact us with your comments and suggestions on how to make this newsletter a more effective tool for all readers to use and hopefully profit from.

 

Author Bio

 

Donald W. Pendergast Jr. has been investing since 1979 and since 2008 has been a professional freelance financial markets writer and trading system developer. He has 1,200-plus articles published at Traders.com Advantage and another two dozen published in Technical Analysis of Stocks and Commodities and/or Active Trader magazines. He has also contributed charts and commentary for The Gold and Oil Guy newsletter and Moneyshow.com.

 

Donald offers a VX futures swing trading system for TradeStation 9.5 users at the TradeStation Trading App Store @ https://tradestation.tradingappstore.com/products/VXPert

His personal website can be found here at http://puertoricool.wixsite.com/trendzetterz

 

Cannabis Technical Trader Disclaimer

Cannabis Technical Trader is not a licensed broker-dealer, market maker, investment advisor, or underwriter. All information that we provide is for informational purposes only and should not be construed as an offer or solicitation of an offer to buy or sell securities. Furthermore, investing in such securities involves substantial risk of loss and investors should seek advice from your financial advisor before making any decisions.

 

Cannabis Technical Trader and its trading signals and stock commentary are intended to be used for educational and research purposes only and are not intended as specific trading/investing advice for any specific individual or entity. Always seek the advice of your licensed broker or trusted financial services professional before trading or investing risk capital in the financial markets. Hypothetical trading system results may differ substantially from those obtainable in a real life trading account with real trading capital and past performance is no assurance that present or future performance of Cannabis Technical Trader signals and commentary will be profitable at all. Trade the financial markets with risk capital only.

 

 

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Disclaimer: Except for the historical information and data presented herein, matters discussed in articles on this website contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from any future performance or achievements expressed or implied by such coverage. Smoke Show Ventures, Inc., which owns The Daily Marijuana Observer, is not registered with any financial or securities regulatory authority, and does not provide nor claims to provide investment advice or recommendations to readers of this release. Smoke Show Ventures, Inc., which owns The Daily Marijuana Observer, may from time to time have a position in the securities mentioned herein and will increase or decrease such positions without notice. Before making specific investment decisions, readers should seek their own professional advice and that of their own professional financial adviser. Smoke Show Ventures, Inc. or its affiliates, which owns The Daily Marijuana Observer, may be compensated for its services in the form of cash-based and/or equity- based compensation in the companies it writes about, or a combination of the two. For full disclosure please visit: https://www.dailymarijuanaobserver.com/legal-disclaimer/.