By Nigam Arora
In the runup in marijuana stocks earlier this year, many less-informed investors aggressively bought marijuana stocks near their highs.
That was precisely the time when those who were following segmented money flows were selling into the strength. Those who bought near the highs are now sitting on large unrealized losses. From emails I get, many of those investors are bewildered. After all, marijuana has a bright long-term future. And they bought when everyone else was buying and technical analysis was giving buy signals.
When I wrote “How to potentially become a marijuana millionaire, albeit carefully,” a lot of money had been made in marijuana stocks by following segmented money flows. Segmented money flows are like X-rays.
The one “must-know” thing for investors who are serious about making money in marijuana is to learn the X-rays of marijuana stocks using money flows. Let’s examine the latest money flows in marijuana stocks.
Please click here for a chart showing segmented money flows in 17 popular marijuana stocks. Please note the following:
• Momo (momentum) crowd money flows are positive in Aurora Cannabis (NYS:ACB) , Aphria (NAS:APHA) and Canopy Growth (NYS:CGC) . However, smart money flows are neutral in those stocks.
• In Cronos (NAS:CRON) , smart money flows are mildly negative, but momo crowd money flows are positive. A short-squeeze potential in Cronos would be extremely positive. More on short squeezes later.
• Smart money flows in marijuana ETF (PSE:MJ) is negative.
• Momo crowd money flows are negative in Acreage Holdings (OTC:ACRGF) , Liberty Health (OTC:LHSIF) and MedMen (OTC:MMNFF) .
• Momo crowd money flows are positive in Curaleaf (OTC:CURLF) and Tilray (NAS:TLRY) , but smart money flows are negative.
• Momo crowd money flows are very positive in New Age Beverages (NAS:NBEV) , but smart money flows are neutral.
• Corbus Pharmaceuticals (NAS:CRBP) is a small biotech company, but it’s also grouped with marijuana stocks. Smart money flows are positive. This stock has come under a vicious short attack.
• In other marijuana-related stocks, smart money flows are negative in GW Pharmaceuticals (NAS:GWPH) , KushCo Holdings (OTC:KSHB) , Scotts Miracle-Gro (NYS:SMG) and Constellation Brands (NYS:STZ) .
• Smart money flows are neutral in Craft Brew Alliance (NAS:BREW) .
• Marijuana stocks often do not correlate well to the Dow Jones Industrial Average (DOW:DJIA) , S&P 500 ETF (PSE:SPY) and Nasdaq 100 ETF (NAS:QQQ) .
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A short squeeze occurs when short sellers either panic or are compelled to buy to cover shares 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 good news, even slightly good news. Marijuana stocks are especially prone to short squeezes.
The chart shows the relative rankings of the five select popular marijuana stocks. Those rankings are based on the six screens of the ZYX Change Method. Please click here to learn about the six screens.
Risk-adjusted rankings are more useful for medium-term and long-term positions. Non-risk-adjusted rankings are more useful for short-term positions or trade-around positions.
What to do now
There are millions to be made in marijuana stocks. However, these stocks are volatile. Volatility will cause many to lose their shirts. Segmented money flows are the best tool to keep your marijuana investments prudent.
Investors ought to learn Arora’s 15th Law of Investing and Trading: Trade-around positions dramatically increase returns and reduce risks. If you have been carefully watching marijuana stocks over the past couple of years, you can easily see how much more money you would have made with less risk if you were following Arora’s 15th Law. The concept is to slowly accumulate core positions for the very long term at favorable prices and surround them with short-term trades in marijuana stocks.
Those not in marijuana stocks may consider waiting patiently for signals to buy them. Right now marijuana stocks are oversold in the short term. When marijuana stocks are oversold, they tend to bounce. However, the risk here is the momo crowd. Since the momo crowd is sitting on large losses, if the momo crowd starts selling on a rally to reduce losses, marijuana stocks could take another leg lower. Please understand that nothing is cast in stone.
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Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.