“The emotional state an investor is experiencing is typically a contrarian indicator. Investors may use their emotion to guide them even though the behaviour is inconsistent with what they are experiencing." – Paul Thornton, Investor Boot Camp.
Pot stocks show why timing matters
On November 16th of 2016 something happened in the leading stocks in the medical marijuana sector. It was a profound event for investors but how many missed it?
The pivotal action was a single session event that has proven throughout history to be one of the most accurate timing signals in the stock market. The significance of it was addressed in the following session in Pot party fizzles. Now we move ahead to today.
EMC-v was a December I.P.O. with an explosive first session trading substantially above the I.P.O. price. The heavy buyer appetite reappeared pushing the stock higher into early 2017. Then a correction started which looked constructive to mid February. Then it broke down and the decline is continuing as the stock has now lost nearly half its value from the December peak.
The subject of November's pivotal sell signal was the leading stock from the Cdn. pot sector Canopy Growth. The stock, (symbol has been changed to WEED on the TSX), has been working through a correction but more bearish action has shown up recently. Now it's testing the low of the range (i.e the correction). You can see the price trends in these stocks below.
Bullish investors aren't doing well since November 17th. Some of them will argue however that each company is different and what happened in WEED is irrelevant. They'd be right but this isn't about companies, it's about stocks.
Stock market behaviour tends to be consistent throughout a sector. That along with other market specific behaviours are the cues investors can use for accurate market timing with both buys and sells. Operating without them is like riding a bicycle blindfolded.
Hot IPO fading
WEED fomerly CGC
Promising story constrained by investors
ACB-v was a stock that didn't get much traction. When it had something going it was squashed by the selling throughout the rest of the sector. Since then it's just like every other stock in the sector. It's no party!
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