Todd Harrison: The Stock Market and Opportunities in Cannabis
Taking stock on a sloppy Monday,
Over the last few weeks, we spent our time mapping the stock market road map through a technical lens. While technical analysis isn't a catalyst in and of itself, it provides a context for risk when juxtaposed against the fundamental, structural, and psychological metrics.
As we enter a fresh five-session set, many of those levels have come into play.
The price action today has a distinct "S's over N's" flavor, or S&P (INDEXSP:.INX) outperformance of Nasdaq-100 (INDEXNASDAQ:NDX), due in large part to the supply of biotech and high-beta tech. IBB (NADSAQ:IBB) 260 and NDX 3640 were levels we recently flagged; both gave way this morning and opened the door for more supply.
The biggest level on the board today is S&P 1850 which, if it holds, "works" to S&P 1960; that zone is getting tested as I type, although the close is always more important than the intraday price action.
Other areas of note include BKX (INDEXSP:BKX) 71.50 and TRAN (INDEXDJX:DJT) 7600, which would confirm the bullish price projection in the S&P, as well as Nikkei (INDEXNIKKEI:NI225) 14K, Shanghai (SHA:000001) 1985, and DAX (INDEXDB:DAX) 9K overseas.
Having just hopped off the phone with the BBC regarding opportunities in the cannabis space, now might be a good time to crystallize my thought process. My assumption is that the interview request germinated from my recent interview on Yahoo Finance, which garnered some attention in the social sphere.
In the interest of brevity, I'll top-line the vibes below:
Since we first started talking about cannabis as my single best idea for the next decade, many of these stocks are up 500-1,000%. That's an important context for this discussion as I'm not climbing aboard this theme as a momentum player.
I have drawn the parallel between cannabis and Y2K; just as anything "dot com" rose into the tech bubble, anything tangentially related to cannabis has benefitted from the green rush.
Much like everything that was hoped for and expected of the Internet proved true but not before a tech crash, a similar scenario may be playing out for cannabis.
We've seen blind ambition run many of these stocks higher, but the business models will need to prove themselves through and investors should expect a bumpy ride, which we're seeing play through now.
In the Yahoo interview, we spoke of three primary catalysts and one interesting twist: 1) increased tax revenues, 2) lower crime rate, 3) lower prison population, and the twist: when Wall Street banks begin to cover the sector, it will pave the way toward institutional investors.
Since that interviewed aired, GW Pharma (NASDAQ:GWPH) was initiated with a Buy at Bank of America (NYSE:BAC) on March 11 with a $93 price target. (Disclosure: I nibbled back on a small GW Pharmaceuticals position this morning.)
According to Gallup, 58% of Americans support the legalization of marijuana. Diving a bit deeper, 72% of those under 30 are supportive while just 29% of those over 65 support it. As time goes on, the groundswell of support will increase in kind as the older demo phases out.
- When we look back in 10 years (or, nine years if we're working off the original thesis), there will be home-run investments that benefit from these secular tailwinds. Many of these will reside in the supply chain and periphery (vapor plays and edibles as opposed to the purer plays, which might get cornered by Altria (NYSE:MO), Monsanto (NYSE:MON), and Potash (NYSE:POT).
Congrats to David Rowan, who enters the Sweet Sixteen atop Minyan March Madness.
I'm surprised that Turkey shooting down the Syrian jet hasn't gotten more play in the mainstream media.
Quarter-end is five sessions away; as discussed last week, it's difficult to game invisible catalysts, but the buyers are usually higher while the sellers are typically lower.
Year-to-date, the Dow (INDEXDJX:.DJI) is down 2% while the S&P and Nasdaq (INDEXNASDAQ:.IXIC) are up less than 1%. That's a lot of motion for such little movement.
ICYMI: Mark Dow and I discuss the Fed, QE, China, Russia and the like.
- "What the mind of man can conceive and believe, it can achieve." -- Napoleon Hill
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at email@example.com.
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