We have had a slow start this morning but the buying action has quickly picked up with the Dow Jones Industrial Average (DJIA) leading while the Nasdaq lags. There is quite a bit of rotational action but some strong pockets of momentum as well.
New Age Beverages Corp. (NBEV) , which I discussed on Tuesday, is taking off as the marijuana theme is still red hot. I also have started a position again in oil play W&T Offshore Inc. (WTI) , which treated us well previously. There is some good action in individual names, but I'm not trusting that the momentum is going to last for long and I am making sure I claim some profits fairly fast where I have them.
Speaking of the red-hot marijuana sector, it is very easy to scoff at the valuation of Tilray Inc. (TLRY) , which has gone from astronomic to ridiculous, but it is a fascinating illustration of the emotions that surround super-momentum trades. There is absolutely no fundamental support for the current price of Tilray, but that it meaningless to the folks who are trading it.
Tilray is an example of trading other traders rather than trading the stock. Rather than buy a stock because of its intrinsic value, it is a an exercise in game theory and psychology. As I recently discussed. the trading is similar to how a Ponzi scheme works. Buyers will keep on buying because they believe there is a good likelihood that someone else will be willing to buy even higher.
Tilray was particularly frenzied this morning, which may signal that a top finally may be forming. One of the big advantages Tilray has is that it is a recent initial public offering (IPO) and there are restrictions on how quickly it can do a secondary offering. Traders do not have that worry, which is a big part of the reason they are willing to pay even higher prices.
Tilray is similar to other crazy momentum plays in the past, such as Internet stocks, shipping names such as DryShips Inc. (DRYS) , rare earth metals, solar energy and many others. At some point it is going to suffer a very ugly drop, but trying to guess when that will occur is like trying to time a slot machine.
If you are playing Tilray, just be aware that you aren't trading a stock. Rather, you are betting on what other traders might do.
