There's nothing wrong with being wrong. Well, it does stink and can hurt a bit if a trader gets stubborn, but it's going to happen in trading and investing. Consider what's been happening recently in the legal-cannabis sector.
I thought that a slew of downgrades over the past week --punctuated by Jefferies basically throwing in the towel on the sector Friday -- could serve as a launching point for a short-term bottom. Many cannabis names moved from red-to-green in the early morning, so I was salivating a bit early in the day.
It was the kind of setup that I've seen play out wonderfully in so many other sectors so many times over the past two decades, and it worked great for cannabis stocks Friday -- for about an hour longer. Unfortunately, most of the sector's stock prices had faded by Friday afternoon.
Well, here we are on Monday morning and cannabis giants Canopy Growth Corp. (CGC) and Hexo (HEXO) tanking after downgrades from Seaport Global Securities (who?). MKM Partners did reiterate a buy rating on Hexo, but when a sector is out of favor, contrarian analyst moves seldom work out for the stock. This isn't a "tie-goes-to-the-runner" situation.
So once again, we're left waiting for a red-to-green move -- stocks in the cannabis sector moving higher on bad news or some fundamental good news that shifts sentiment. But until that happens, there's no shame in cutting your losses on any name that's not working.
If Organigram (OGI) can close above $3 Monday (it's at $2.93 as I write this), then I'd say that one is still working -- although it's borderline at best. But Village Farms International (VFF) at its current price of less than $7 isn't working, nor is Canopy Growth when it's down 5.5%, as it was at last check.
However, I wouldn't cut my position in the CGC ratio put spread that I touted on Oct. 9. Canopy Growth has lost roughly 20% since then, but the ratio put spread I wrote about then remains in the same trading range as it was in last week.
Still, Wall Street's hate for the cannabis sector isn't through. We haven't seen a capitulation yet, and my excitement for weed stocks on Friday was both short-lived and wrong.
So, I'm willing to take my quick lumps on my nibbles so I can live to fight another day. Sometimes we have to start the week humbled, and that's just how I'm beginning things here.