The cannabis stocks sector got hit in recent days. Our cannabis stocks forecast was very bullish, particularly the Canadian sector, as explained in great detail in our Cannabis Stocks Canada Forecast for 2019. Is the recent correction a classic ‘buy the dip’ opportunity?
Let’s turn our attention to the sector ETF. Unfortunately, there are not lots of ETF’s to choose from when it comes to the cannabis stocks sector.
In our cannabis stocks forecast we selected the HMMJ.TO ETF which seeks to replicate the performance of the North American Marijuana Index. We also said that it is a North American index but we are convinced that Canadian cannabis stocks will outperform. “We expect them to triple in 2019. Yes we have an ultra-bullish cannabis stocks in Canada forecast for 2019, but reasonable.”
For the sake of the question whether it is a ‘buy the dip’ opportunity we will ignore the split between Canadian and US based cannabis stocks.
The HMMJ.TO ETF chart embedded below shows the peak of mid-September, not only in price but also in terms of volume (lower area of the chart).
What stands out to us is that both price and volume came down to important areas.
First, price came down to test the January 2018 peak. This ‘test’ an important ‘event’ because, as per Tsaklanos his 1/99 Investing Principles, only 1% of price points on a chart deserve your attention.
Second, trading volume came down to the lowest level of recent 6 weeks.
We expect buyers to step in around current levels. They will push trading volume up, provided they do step up.
Alternatively, some may wait until resistance is hit which is some 15 pct below current levels.
Why we believe that this is a ‘buy the dip’ opportunity? Because the chart clearly shows that there was an attempt to move from band (1) to band (2) which is a very bullish sign.
Remember, for the long term, we said that that “the next top will be at 47.00 which is likely to happen in 2019.” We stick firmly to this belief.
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