From the desk of Tom Bruni @BruniCharting
Marijuana stocks have been an absolute disaster for longs in 2019, but one chart suggests that after a nearly 60% decline, the Horizons Medical Marijuana ETF and its components are set up for a counter-trend rally.
Here’s the daily chart we’ve been using to guide us since the Horizons Medical Marijuana Life Sciences ETF (HMMJ) came public in April 2017. Following a quick double, prices settled into a 21-month range between 15 and 26 that was broken to the downside in late September after a failed breakdown and bullish momentum divergence were left unconfirmed.
After falling 35% from that failure and 60% from its 2019 high, the ETF is now showing signs of waning downside momentum as prices quickly recover from new marginal lows. It’s also curious to note that this development is occurring at its IPO price around 10.
Click on chart to enlarge view.
Taking a closer look we see that prices have confirmed a failed breakdown and bullish divergence by closing back above their October lows. While it may look like a small, insignificant development, a squeeze could really get going if prices stay above 10.35 given how far prices are from their 200-day moving average (not pictured) and how many shorts are in the space.
We’re likely to know whether this setup works or not very quickly. The saying is from failed moves come FAST moves in the opposite direction, so if we don’t see follow-through in the next few days or prices just chop around this 10.35 level then we’ll have to reevaluate.
With two major components reporting earnings on the 14th, I’d say a resolution one way or another is a safe bet.
For now though, the thesis is intact and the bias is towards 12.50-13.00 as long as prices are above 10.35 on a closing basis. If you’ve been waiting for a reason to trade Marijuana stocks on the long side, this looks like as good a reason as any.