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Feb. 11, 2019, 11:17 a.m. EST

How to tell when a marijuana-stock rally is real or a mirage

So-called short squeezes often play a role in the rise of marijuana stocks

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By Nigam Arora


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As marijuana stocks have rallied recently, many investors have gotten in over their heads.

Once they get in, some begin to realize their positions are too big and find it hard to figure out what to do next. On the other end of the spectrum are investors oblivious to the risks.

For both groups, investors are forgetting that marijuana stocks can be volatile. When I wrote “How to potentially become a marijuana millionaire, albeit carefully,” the most important word in the headline was “carefully.” Some will gain, but many more will lose.

Investors need an edge. And segmented money flows provide that edge. Let’s examine with the help of a chart.

Chart

Please click here for a chart showing segmented money flows in 15 popular marijuana stocks. Please note the following:

• The real reason behind the latest move has been short squeezes and not a change in fundamentals. I will explain short squeezes later on.

• As the chart shows, momo (momentum) crowd money flows are extremely positive in Aurora Cannabis /zigman2/quotes/210559470/composite ACB -0.93% , Canopy Growth /zigman2/quotes/200603886/composite CGC +2.43% , Cronos /zigman2/quotes/206842762/composite CRON +5.17% and Tilray /zigman2/quotes/209129655/composite TLRY +2.64% . Please see “If you buy only one marijuana stock, this should be it.”

• As the chart shows, momo crowd money flows are positive in Aphria /zigman2/quotes/207425803/composite APHA +1.54% , Liberty Health /zigman2/quotes/208734362/composite L +0.48% , MedMen /zigman2/quotes/201940908/delayed MMNFF -3.67% , Green Organic Dutchman Holdings /zigman2/quotes/204266798/delayed TGODF -5.39% and New Age Beverages /zigman2/quotes/200595917/composite NBEV +1.55% . Please see “What to do now if you own, or want to buy, marijuana stocks.”

• In contrast, smart money flows are neutral in these stocks with the exception of Aurora Cannabis. Smart money flows in Aurora Cannabis are mildly negative.

• Momo crowd money flows are positive in GW Pharmaceuticals /zigman2/quotes/209686240/composite GWPH -0.13% , Scotts Miracle-Gro /zigman2/quotes/200553749/composite SMG +0.83% and Constellation Brands /zigman2/quotes/207737284/composite STZ -0.48% . Smart money flows in these stocks are negative.

• Both smart money flows and momo crowd flows are positive in Corbus Pharmaceuticals Holdings /zigman2/quotes/201549545/composite CRBP -1.13% .

• Momo crowd flows are negative in Craft Brew Alliance /zigman2/quotes/209915231/composite BREW -0.30% .

• Momo crowd money flows are positive in marijuana ETF /zigman2/quotes/204332491/composite MJ +0.32% but smart money flows are negative.

• Marijuana stocks have once again become uncorrelated to the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.17% , S&P 500 ETF /zigman2/quotes/209901640/composite SPY +0.31% and Nasdaq 100 ETF /zigman2/quotes/208575548/composite QQQ +0.49% .

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

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N/A
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N/A
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N/A
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Market Cap
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$532,058
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/zigman2/quotes/207737284/composite
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$ 189.95
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1.58%
Market Cap
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N/A
Dividend Yield
N/A
Market Cap
$458.53 million
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/zigman2/quotes/209915231/composite
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$ 16.42
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P/E Ratio
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N/A
Market Cap
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/zigman2/quotes/208575548/composite
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