By Nigam Arora
Illinois is a relatively big state, the sixth-largest in the U.S. when measured by population. And it just legalized marijuana, the 11th state to do so.
Adults, 21 and older, will be able to buy and possess cannabis starting Jan. 1. Prior low-level convictions for marijuana possession will be pardoned.
Amid this news, one would expect marijuana stocks to run higher, but that’s not happening.
Just like a doctor does X-rays to see what is going on inside the human body, investors can do an X-ray of marijuana stocks to figure out what is really going on. Segmented money flows provide the X-rays. Since I wrote “How to potentially become a marijuana millionaire, albeit carefully,” a lot of money has been made in marijuana stocks by following segmented money flows. So let’s examine the latest money flows.
Please click here for a chart showing segmented money flows in 17 popular marijuana stocks. Please note the following:
• A big part of the runup in marijuana stocks earlier this year was due to short squeezes.
• A short squeeze occurs when short sellers either panic or are compelled to buy stocks to cover those that were previously short sold. This leads to a lot of artificial buying that is not based on fundamentals. Often the trigger for a short squeeze is slightly good news. Marijuana stocks are especially prone to short squeezes.
• There are not many things about the stock market that any credible person can speak with certainty. However, we can say with certainty that short squeezes eventually end. When short squeezes end, artificial buying goes away and stocks drift down. As an example, take a look at what happened to Tilray /zigman2/quotes/209129655/composite TLRY -6.71% stock. Tilray ran up to $300 in a short squeeze and has now fallen back to $47.60 as of this writing. Please see “Tilray is the poster boy of short-squeeze stock candidates — here’s how to find others.”
• At The Arora Report, our subscribers have profited from signals to buy marijuana stocks when short squeezes start. On the other hand, tremendous profits have been made by short-selling marijuana stocks when short squeezes end. Money is made by short selling when stocks fall. For example, The Arora Report gave a signal to short sell Tilray as high as $280. Profits were taken on most of the position around $100 in tranches. A very small quantity is still being held to reach our target zone for more profits.
• Please see a classic example of making money by buying a stock at the beginning of a short squeeze even though the fundamentals were not there by clicking here for the annotated chart of India Globalization Capital /zigman2/quotes/205797879/composite IGC -2.34% . For an explanation, please see “Marijuana beverages are the new thing, but investors should only take sips.”
• The chart shows that short-squeeze flows have changed from very positive to positive in Aurora Cannabis /zigman2/quotes/210559470/composite ACB -3.86% , Acreage Holdings /zigman2/quotes/205165963/delayed ACRGF -5.05% , Aphria /zigman2/quotes/207425803/composite APHA -8.51% , Canopy Growth /zigman2/quotes/200603886/composite CGC -7.78% and Curaleaf /zigman2/quotes/205334348/delayed CURLF -3.50% .
• The chart shows that short-squeeze flows have changed from extremely positive to positive in New Age Beverages /zigman2/quotes/200595917/composite NBEV -2.21% and Cronos /zigman2/quotes/206842762/composite CRON -9.22% .
• Short-squeeze flows are still very positive in marijuana ETF /zigman2/quotes/204332491/composite MJ -4.65% .