One of the problems with the dip buying that has saved the market so often for so long is that when it stops working things become very ugly, very fast. That is what we have happening this morning. There was a very brief attempt to bounce in the first few minutes but that failed quickly and when the opening lows were taken out the selling really accelerated.
It is likely that the dip buyers have lost some of their confidence after the ugly intraday reversal that occurred on Monday. The dip buyers had a nice trade on the soft open Monday morning but the bounce reversed fast and hard, and it ended up being quite an ugly day. The bounce yesterday had good breadth but it did not have the feel that buyers were fearful of missing out.
This breakdown this morning is significant. Breadth is 3 to 1 negative and here are nearly 400 new 12-month highs to only 80 new highs. The selling is accelerating as I write which is the first real sign of panic that we have had in a while.
One positive spot in this sea of red is Canopy Growth (CGC) . Canopy is a Canadian-based producer and seller of marijuana products for medical and recreational use. It owns 10% of the licenses issued in Canada for pot sales and is doing things like researching pot as a replacement for sleep aids such as Ambien.
CGC had a big run up into the legalization of pot in Canada and has been holding up well despite some soft earnings report versus expectations. As can be seen from the ETFMG Alternative Harvest ETF (MJ) , the entire sector has been in a downtrend for a while as there has been an inclination to sell the legalization news.
This morning CGC is up sharply on news that Constellation Brands (STZ) is investing $4 billion in the company to help bring them into the mainstream. Constellation is a leader in wines and spirits so recreational marijuana would seem to be a perfect fit. The market is afraid STZ may be overpaying for CGC and it's down 8% on the news but this is obviously a long-term play on a major industry and will likely pay off well as the niche gains more acceptance.
This is an extremely tough market right now and it is difficult to enter either CGC or STZ on this significant news. Both should remain 'go to' plays on the marijuana industry.