Whatever you think about marijuana, you must admit the commodity has presented a rare opportunity to invest in the earliest stages of an industry about to be legalized and marketed to the world. Canada is strongly positioned as one of a small number of countries currently exporting medical marijuana. The global market is estimated to be $200 billion, split about evenly between recreational and medical weed. If you had thrown a dart July 12, 2017 and landed on any one of the 20 CA marijuana stocks, you would have made good money. By January 9, 2018, there were 17 triples, ranging from Innvictus MD, IMH, 112% to Newstrike Resrc, HIP, 821%.
The legislation isn’t expected to be finalized until July, so investors can’t be faulted for expecting more opportunities for outsized gains in the months ahead. But volatility, especially the last couple of weeks, has been unnerving to say the least. It hasn’t been uncommon for MJ stocks to rise 10% or more, then fall 10% or more, and then rise, or fall, another 10% or more, all in one day! Caution is advised. These stocks may not suit your temperament or risk tolerance.
So, during our Saturday, Jan. 6th International Online User Group Forum, investors wanted to know a few things:
- How could we have spotted the rising trend at the earliest?
- How could we have identified the weed stocks with the most upside potential?
- What’s the best way to play the weed stocks going forward?
Well, in answer to the first question, I didn’t just pull July 12th out of thin air. We have the advantage in VectorVest of being able to plot the average price of an entire industry group on a graph. When the industry is rising, usually most stocks in the industry will rise as well. Look at the Healthcare (Marijuana) graph using just Price, RT and VectorVest’s default 40-day SMA. On July 12, 2017, Price closed above the 40-Moving Average (MA) and RT was rising. Now go to Add Parameters, click on Capital Appreciation and click on RT Ranking. Add it to the subgraph and you’ll see that Marijuana was moving up, outperforming other industries. A very cool indicator. That industry graph set-up is what to look for. Now, of course, not all trends take off like this one, but it happens often enough that you should look for this setup.
Second question. How could we have found the weed stocks with the best potential? Once again, you should always check the graphs and the news. However, I wanted to know which of VectorVest’s key indicators might have done the best as a sort. So, I ran a few QuickTests starting on July 12, 2017 and then the 12th day of each month thereafter, or the Friday before the 12th if it was a weekend. The end date was Tuesday, January 9, 2018. I ran a Quicktest of the top 5 stocks, sorting in turn by RV, RS, RT, VST, CI and GRT. I was pretty sure RV would be among the top sorts. But RV was last with an average gain of 166.52% over the six months. Not too bad, but too short a timeframe for RV perhaps?
CI was #1 with an average gain of 261.15%, followed closely by RS, 254.99%. The RS sort was helped greatly by the December QuickTest, the only sort that returned HIP which gained 400% in less than a month to January 9, 2018. Among the other sorts, GRT returned 211.35%, VST 210.79% and RT 193.98%. So, going forward, I plan to use the CI or RS sort and my graph layout to find the best weed stocks to buy.
What’s the Recipe for Marijuana Stock Success?
So, what’s the best way to play them? Long term? Swing trade? Day trade? Turns out we have subscribers doing all the above, and a few said Saturday they are playing all three at the same time. Here are a few ideas. If you already own one or more weed stocks, and you’ve got a nice profit, you might continue to hold with a fairly wide Stop. Don’t sweat those heart-thumping intraday moves, more of which are surely yet to come; but do have a Stop in VectorVest or with your broker that protects enough of your gain to make you feel happy and proud if it were to sell. If ‘happy’ is your main criteria, you might decide to sell near a top when price is extended from its 40-MA, and then wait for a sell-off to buy back in.
If you’re buying now with the hopes of holding through to the legislation, try to buy when price isn’t quite so extended away from the 40-MA. Make sure your stock and the industry group are rising before you step in. And if you want to do short-term trading, you might wait for price to find support after an intraday pullback, and sell when you’ve got a nice gain, one that you’re happy with. Then do it again another day.
Remember, caution is advised. Marijuana stocks are considered speculative, not only by analysts, but by VectorVest as defined in the Investment Matrix (See Views/Special Reports). You don’t need to invest large sums of money in these stocks as a percent of your portfolio and you probably shouldn’t. These are not Worry-Free Investments for your retirement account. We should all pay attention to the LESSONS FROM THE MARIJUANA MAYHEM.