I didn't liquidate the vast majority of my cannabis holdings two days ago because I lost faith in the sector. I did so because I lost faith in the decision making abilities of investments. This morning, we saw some signs of short-term oversold washout after the big recent runs. What we'll need to watch for here is lower highs compared to the past few days. Additionally, mark today's lows. If we can't take out the old highs, then we should have a hyper focus on today's lows. Should they break, then things will likely become very challenging for cannabis bulls over the next month.
I would anticipate another 10% lower on the strongest names and those that didn't double, triple, or skyrocket in a matter of a few days. For the high flyers, I would expect something more along the lines of 25% to 30% lower should today's lows get cracked in the next week. Even with that being said, it doesn't make me bearish, nor should it make you bearish. We simply have more information now to draw on for shorter-term decision-making. Use it. Unemotionally.
I have begun to build small positions in Agrify (AGFY) and Hydrofarm Holdings Group (HYFM) . I do wish each had options, so I'm keeping my positioning small as I add. When options become available, I'll look to transition more to call spreads given the relative newness of each company.
The price on HYFM broke out earlier today. This push above the recent bullish flag pullback sets up well as a follow through move after the January move higher. Bullish crossovers in the MACD and Full Stochastics have also performed well, however, it is fair to note the technical picture has a short history. This move measures to $100. Should we get a close above $90, I anticipate traders will gravity towards $100. It's a big round number markets tend to like.
I'm certainly not abandoning cannabis but the recent move, especially in the Canadian names, pushed us beyond what I see as fair value in February 2021. It allowed me the chance to free up some cash to begin building some positions in psilocybin names. This is a group that is in the very early innings when compared to cannabis. I except more money to hit the sector and not all rotation from cannabis, but from investors seeking the evolution of traditional treatments for conditions like depression, ADHD, OCD, eating disorders, addiction, and other disorders big pharma has failed to hit the mark. More patience will be required in that area, but the upside is tremendous. I'll be back next week with a few specific names I like in the group.