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February 03, 2023

Equity.Guru

Investment information for the new generation

Cannabis

Is the Cannabis Bottom In? The Technicals Say Yes!

Is it time to buy Cannabis? Over the recent weeks, here on Equity Guru, I have been telling readers and discord members that the bottom may be in for Psychedelics and Cannabis. Psychedelics have been teasing us with a reversal pattern, but so far, no breakout trigger as I have outlined.

However things are shaping up differently in the Cannabis sector. And when I mean differently, I mean bullish. Same market structure just like Psychedelics, but the difference is that the Cannabis space has confirmed the breakout trigger!

I will be focusing on the US side here since the fundamental catalyst is most likely to come from South of the border, in terms of Federal legalization. Regarding the fundamentals, some of you may disagree with me calling the bottom here because of the lack of fundamentals. You may be correct, but I am trading the markets that I see. There is still a chance that this breakout could be a false one, but I will delve into that a bit later.

TradingView Chart

Above is the daily chart of the US Cannabis ETF MSOS. Some of you might already see all the bullish confluences. Seriously, it looks good.

First off a simple market structure recap for my new readers. ALL MARKETS move in three ways: downtrend, range, uptrends. That’s it. Nothing more and nothing less. Our job as investors and traders is to determine what stage we are in. Nothing moves up or down forever, so knowing this information, the niche I have carved out is being an early trend reversal trader. Essentially I look for downtrends to show signs of bottoming and then reversing.

The key in a downtrend is a prolonged downtrend. Just like we have here on MSOS. Multiple lower highs and lower lows. I know lot’s of Cannabis investors felt every bit of those bumps.

Just recently, we have signs that the downtrend is now over. No more lower highs and lower lows, but higher lows and higher highs. Or, the start of a new uptrend, repeating the move we made to the downside, but now into the opposite direction.

Notice the other confluences I have. We have a down trend line breaking. We also closed above resistance, or price ceiling, at the $23.25 zone. The breakout happened on February 9th 2022 with a large green body candle. So might even say we have a mini cup and handle reversal pattern printed!

I have drawn out what I want to see next. I would love for prices to pullback to retest the breakout zone (just normal breakout price action that bulls do not need to worry about). What was once a price ceiling at $23.25 now becomes the new support, or price floor. It allows buyers another chance to get in if they missed the breakout.

Alright so what would make me turn bearish? As I said, a false breakout is still possible. If the daily candle closes below the $23.25 support zone, we then get a false breakout. Buyers did not step in on the retest.

Can this happen? Yes. If the overall markets drop due to fear, then MSOS and Cannabis stocks would follow. I am of course talking about the current geopolitical tension weighing in on markets. You know…the Russia-Ukraine stuff. But I must say, even with US stocks and indices falling heavily in the last few trading days, MSOS has been holding up resiliently. And I think this is something to take note of.

Yes, we did not get any follow through after the breakout candle on February 9th, but that is because of overall market weakness. The positive take away is even with said market weakness, MSOS held above support. Great news for Cannabis bulls!

 

TradingView Chart

TradingView Chart

TradingView Chart

TradingView Chart

TradingView Chart

Above are the charts of the bog boys: Curaleaf, Trulieve, Canopy Growth, Tilray and Green Thumb. All of them are the US listings, but the Canadian listings look similar.

Notice something? Yup, the same market structure hinting at reversals.I will be honest, the Curaleaf set up actually looks the best. Just a bit more clean on the technicals.

Exciting times for Cannabis investors, and technically, the bottom is in. The retest will be key, and if geopolitics drives money into safety, putting pressure on all markets. So far Cannabis is standing strong. We do have the potential fundamental catalyst with US Federal legalization. But perhaps, Cannabis just looks cheap here in comparative terms to everything else in the markets.

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