A Macro Assessment of the Blazing Cannabis Industry

Tracking major pot ETFs can provide traders with a full-industry guage

CMT, Senior Market Strategist
Oct 27, 2021 at 8:00 AM
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On Thursday, October 14, Schaeffer's Investment Research's Senior Market Strategist Matthew Timpane, CMT, was a featured presenter at the Benzinga Cannabis Capital Conference. Timpane started his presentation with a macro-level analysis of the entire cannabis sector and industry.

Let’s take a look at the U.S. Cannabis Industry ETF that I like to look at, AdvisorShares Pure Cannabis ETF (NYSE:YOLO). So, right out of the gate, when YOLO was initiated and put onto the exchanges, like an IPO, it came out and it kind of fell, but then it quickly took off for almost 100% return. Anytime you see parabolic moves like this, you're always going to get a correction.

So, while we were all happy in January in February, heading into March. A lot of times there is risk to this, and I did talk about that at the previous presentation at the last Benzinga Capital Conference back in February.

Right now, YOLO is now trading down to what we like to call its half-high It's down 48%, from peak to trough, which is also the drop of 20% year-to-date level and just below its 20% year over year level. So, these are the levels that traders sometimes gauge off of these nice round numbers on year-to-date and year-over-year levels. What we'd like to see is for that to continue to hold this level right here, and then break back out above $33. breaking out of that downtrend spiral would be just huge.

There's a couple of reasons why there's puts that are being sold, especially if you look at an open interest chart right at $33. And what that means is market makers are typically short right now this because they sold those puts. The market markets will be able to buy back the shares as we approach the $33 level. And, if we break out, market makers won't have to be short those shares to offset the puts they had sold.

What's not on the chart is the peak, call it at $41. So, that would be your first target. If YOLO this breaks out, it would be in the $41 area. You could also maybe see some resistance around $38. Failure here though, would likely also bring YOLO down to about $26. That's kind of the where rightward kind of was initiated and put on an exchange around 2526.

And then also you see that there was a hesitation back there in November, around this level. So currently, AdvisorShares Pure Cannabis ETF is also trading below all moving averages. But this is where you can usually find a way to find these extreme oversold buy opportunities. You just need to be careful with your allocation and not go all in into this sector because the technicals just aren't there yet.

Let's take a look at Etfmg Alternative Harvest ETF (NYSE:MJ). This is a little bit better for Canadian companies. Something we liked to talk about last February, we're talking about how it entered this band right here of resistance. Now, where did it fail? It failed right in that band. So, we were having a conversation that we needed to get back through this band.  Since then, MJ has fallen nearly 61%. 

We have noticed with high volume, high volatility stocks that sometimes Fibonacci percentages work on price, not just for retracements or extensions. It’s an interesting thing every once while we run a screen on it, I'm in a trade right now. That's all that was a driver for it. But MJ is also now chilling out around the year-to-date mark at 5%. And it's just 20% below the year-over-year level. If Etfmg Alternative Harvest ETF does kind of breakdown, there is this gap to fill here at $13.50. That will bring you to the year-to-date breakeven mark perfect area for entry for somebody that's looking for a real contrarian move.

The one thing I would say is peak calls at 17, you can see some resistance. So that would be an area that you would want to watch out for. But that can change. All kinds of cannabis-centric ETFs really look the same as MJ. They're all trading well below their 80 week moving averages. So, something that we just kind of want to be aware of.

Feel free to come over to www.schaeffersresearch.com and check us out we always got good material being put out there regarding options industry, give us a follow on Twitter at @schaeffers and @mtimpane we are always willing to engage and we're always trying to put great content out there for everyone.

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