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Pot Stocks: As the Smoke Clears

2019 was a record year for equities, as they finished at or very near to all-time highs, in addition to appreciating almost 30% in 2019 alone. But the bull market in stocks was not kind to all sectors in the market, especially cannabis stocks. In fact, there were some pundits who claimed 2019 was the equivalent of 2008 for pot stocks-- it's hard to disagree with that statement.

A quick glance at the chart above displays the carnage suffered in $MJ, which is an ETF that owns a basket of cannabis stocks. Most of these stocks are Canadian, as it is already legal nationwide for our northern neighbors. In any case, the start of 2019 looked rather promising for cannabis stocks, as they appreciated roughly 50% from the start of 2019 until forming their annual high on March 19. Following that high (pun intended), cannabis stocks fell nearly 60% to their lows in mid-November.

But recent behavior in this sector now warrants our attention. Without getting into too much detail out of respect for our subscribers, the recent activity in cannabis stocks shows some promise. We have shared our best pot stock ideas with subscribers to the Mercator Letter in the past few months, as we are starting to see great value present itself in this sector.

In addition, this is a market that I analyze in much more detail via Merriman Market Analyst's International Cycles Report: Commodities. Cannabis was added as a market to this report in July 2019, and it was very well received by subscribers. In fact, we were able to capitalize on the short side of this market for much of its decline throughout 2019.

The daily chart above seems to have formed into a symmetrical triangle price pattern. Traditionally, these are continuation patterns, and the trend in this sector has undoubtedly been down, but every once in a while, they can act as reversals.

In any case, this is a sector that is on our radar for Q1 2020. If you are interested in learning more about how exactly we are approaching this market, I highly suggest you subscribe to the Mercator Letter. In the meantime, the smoke appears to be clearing on cannabis, so the final damage can be assessed. There is some tremendous revenue growth in this sector, which is something the institutional investors and Wall Street absolutely loves to see.

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