The cannabis stocks (a.k.a. weed) have been a volatile group over the past few months, but Jim Cramer offered up five predictions for 2019 during his Mad Money program Monday night. These forecasts could help investors sort through the myriad of confusing investment options.
First, Cramer said the legalization wave is likely to continue. Now that Canada has legalized recreational use, it's likely that more states here in the U.S. will do the same. Next, Cramer predicted a rise in the uses for CBD, the part of marijuana that doesn't make you high. CBD could be infused into countless food and beverage products. Third, Cramer said only a handful of major players will emerge in the cannabis space. Fourth, Cramer said he expects to see more branding emerge, as companies pivot from increasing production to taking market share. And lastly, he said investors should expect more involvement from biotech, as cannabis components are being more thoroughly studied for a host of ailments.
Not too long ago others in the financial press were quick to label the runup in some cannabis stocks like Tilray Inc. (TLRY) a "bubble." Prices did soar sharply and then corrected. The group is firming again, in my opinion. In addition to Tilray, the group that Cramer is following includes Canopy Growth Corp. (CGC) , Cronos Group Inc. (CRON) , and Aurora Cannabis Inc. (ACB) .
Let's check out the charts real fast.
This daily bar chart of CGC, below, is a strong-looking chart. Prices have been making higher lows from February and CGC is above the rising 50-day moving average line and the rising 200-day moving average line. The volume pattern shows heavy volume in August-October as prices rallied but lighter volume as prices declined to a late December low. Volume has increased this month as CGC has rallied back toward its 2018 highs.
The daily On-Balance-Volume (OBV) line has turned up and is not far from a new high for the move up. The daily Moving Average Convergence Divergence (MACD) oscillator is in a bullish mode, rising from the zero line.
In this limited daily bar chart of TLRY, below, we can see a very dramatic rally from August to the middle of September. A rally from around $20 to $300 in a few weeks caught the attention of journalists who were quick to label it a "bubble." True bubbles take a long time to unfold so a seven-week rally does not qualify. Bubbles suck in nearly everyone who is desperate to participate. We are a long way from that juncture. TLRY gave back a large percentage of its overnight rally and since then it has slowly declined to a December low with a retest this month. Prices are just a fraction below the bottoming 50-day moving average line.
The daily On-Balance-Volume (OBV) line is steady and the MACD oscillator is poised to turn up with the price action.
Cronos GroupIn this daily bar chart of CRON, below, we can see a strong uptrend playing out. Prices moved sideways to higher from February to the middle of August. From August the rally has been much stronger with sharp rallies and corrections. The level of trading volume has really picked up steam since the end of August and the daily On-Balance-Volume (OBV) line has climbed steadily. A rising OBV line is a sign that buyers of the stock have been more aggressive. This helps to confirm price gains.
The trend-following MACD oscillator has been strong and there are no hints of a reversal.
In this chart of Stocks Under $10 holding ACB, below, we can see a bullish base pattern. Declines below $6 and down to $4 have been bought the past year. Prices are above the flat 200-day moving average line and the bottoming 50-day line.
The OBV line has turned higher telling us the buyers are more aggressive and the MACD oscillator is above the zero line for a buy signal.
Bottom-line strategy: I think it is still early in the cannabis group and patient investors that do their homework (both fundamental and technical) could garner outsized returns in the months ahead.