I’m sure there are folks who bought and added to their positons in CGC, TLRY, ACB, and/or CRON yesterday after the Jeff Sessions resignation news expecting a return to highs.
I’m hoping this post will explain why post stocks sold off (at least my interpretation). Please reference the graphic below as you read the post.
Earlier in the year/month we had a monster run into almost 60 on CGC. This also coincided with Oct 17’s legalization date. We had a big push in afterhours ahead of open and then CGC proceeded to sell off all day on Oct 17. This type of selling is usually referred to as “sell the news” and I would advise all traders to be prepared for this on any large gap up on news event days. (Side note: Black Box Stocks members were warned about this ahead of Oct 17 — I had been cautioning folks in the Black Box Stocks chatroom that a sell the news event is likely coming — I just didn’t see a catalyst or a reason to be excited to draw in new buyers after that date. )
Since Oct we had a major market correction and pot stocks sold off with small attempts at bouncing with no follow through.
Once CGC pulled back to nearly 50% off the all time highs, it found support and the next catalyst to attract buyers. That catalyst was the US elections where the possibility of more states legalizing marijuana would come into play.
So we then proceed to have a run up right into election night and pre-market on the election results. Again, you then have to ask yourself, great, what’s next to attract more buyers. Also you have to realize that in less that 7 trading sessions CGC was up from 32 dollars and into 42-43 bucks for roughly 30% gain off the lows. Sure it can run up more but the price action didn’t support that and it started selling off on Nov 7.
This is where it gets tricky. As folks were selling and new short positions being established news that Jeff Sessions is resigning hit the wires. The belief being that this is net positive for the mj industry. So what happens, shorts need to cover as we break day highs and new buyers come in. I flipped long as well on this for nice gains but sold most of my position by close and was thankful for the fast gains. I was hoping for a gap up push the next day to lock in the rest of my gains and flip short. The reason I wanted to get short is that the push into 46-48 represented a roughly 50% gain off of recent lows AND the changes to government stance would still take time so there is no rush or need to be buying / driving the stock higher especially after these recent gains.
The following morning pot stocks started selling off without the gap up push I was hoping for and returning to the same levels ahead of the Jeff Sessions news.
So why did pot stocks sell off after the run up on Jeff Sessions news? In my opinion:
- Profit taking after recent 30-50% gains in 7 trading sessions.
- Lack of major new news to attract more buyers in a hurry. Jeff Sessions leaving doesn’t actually change anything in the near term for the industry. Now if the news was Schedule 1 related we’d be seeing something very different.
- The dip buyers in the 50s that averaged down in low to mid 30s had a chance to exit flat or with some profit and relief.
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