Marijuana Stocks: CRON Stock Is at Risk of Giving Up Its Gains

Marijuana Stocks: CRON Stock is at Risk for Giving Up Its Gains
iStock.com/Yarygin

CRON Stock: The Sector is Likely to Sustain Further Losses

Marijuana stocks as a whole have been performing poorly since October 17, which was when marijuana became legal in Canada. Since that date, this sector has been caught in a downdraft, and that the general state of the markets has also been poor has not done this sector any favors.

There have been a a few bright spots in this sector that have manageds to buck the the trend, and Cronos Group Inc (NASDAQ:CRON) stock has been one of them.

The reason why this stock has been able to separate itself from the pack is because rumors started swirling on December 3, 2018 that Altria Group Inc (NYSE:MO) was interested in purchasing shares of Cronos stock.

These rumors came to fruition on December 7, when news broke that Altria was making a strategic investment into CRON stock worth $1.8 billion. As a result of this news, CRON stock continued its ascent, and it peaked at $13.95 that same day, and it has been drifting lower ever since. (Source: “The maker of Marlboro cigarettes is plowing $1.8 billion into the cannabis producer Cronos (MO, CRON),” Business Insider, December 7, 2018.)

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Even though CRON stock has effectively separated itself from the pack in recent weeks, I have some serious fears and concerns that these gains will likely be given back in the weeks that follow.

For one, the market conditions are not exactly favorable. But more importantly, I believe that the marijuana stock sector is broken, and it is therefore likely to endure further losses in the weeks and months that follow.

For instance, market heavyweight Canopy Growth Corp (NYSE:CGC) has broken below a very key and significant level of price support:

Chart courtesy of StockCharts.com

This Canopy Growth stock illustrates a price action consisting of a series of higher highs and higher lows, which is a quintessential characteristic that defines a bullish trend.

The uptrend line, on the chart above was created by connecting the sequence of higher lows that were generated over the last 16 months. It captures the bullish trend by pinpointing where significant levels of price resistance reside.

I have been watching this uptrend line very closely because every time it has been tested, the stock has bounced right off of it, and higher prices have followed as a result. I always assumed that as long as CGC stock was trading above this uptrend, that a bull market was in development.

This assumption has now been negated because the stock has broke below this level price support in December, indicating that the bullish trend that has been so kind to investors has finally come to an end.

It’s not just this marijuana stock that is broken; OrganiGram Holdings Inc (OTCMKTS:OGRMF) has also suffered a similar breakdown. This breakdown is captured on the following stock chart.

Chart courtesy of StockCharts.com

This OGRMF stock chart is strikingly similar to Canopy’s. Both stocks contained similar bullish trends, and as result, when the series of higher lows were connected, similar uptrend lines appeared.

In December, OrganiGram had also succumbed to selling pressure and ended up decisively breaking below its uptrend line. This was supporting it since July 2017, and this break below support is suggesting that the bullish trend in OGRMF stock has also finished.

These two stocks do not speak for the entire sector, but that of Horizons Marijuana Life Sciences Index ETF (OTCMKTS:HMLSF) does. This ETF has suffered a similar outcome, as captured below:

Chart courtesy of StockCharts.com

This stock chart is proxy for the entire sector, and it too has suffered a similar breakdown. This implies that the bullish trend in the entire sector has come an abrupt halt, opening the door for further losses.

These charts that I have provided speak volumes about the marijuana stock sector, and it is specifically where my fears about this sector stem from.

In regards to Cronos stock, fighting the trend is never a good idea, because, as a general rule, it’s a lot easier to trade in the direction of the predominant trend rather then against it.

The trend in marijuana stocks has turned for the worse, which is why I believe that Cronos stock is likely to give up the gains that were made following the news that Altria was taking a stake in the company.

Analyst Take

I currently fear that recent gains in CRON stock are unlikely to hold, especially if the selling pressure in the stock market and this sector continues. If this selling does not dissipate, I believe that Cronos Group Inc. is likely to sell off with its peers.