Published: Aug 29, 2018 12:43 p.m. ET
In the coming years, marijuana will create a lot of millionaires.
One of them may be you. But only those who put in the effort, gain the required knowledge and exercise patience to invest correctly over a long period will succeed. Those tempted by get-rich-quick schemes will lose their hard-earned money.
For investors, the marijuana industry reached a milestone when the first marijuana company, Canada’s Tilray TLRY, +10.38% did a U.S.-only listing in June and reported its first earnings as a public company after the stock market closed Tuesday. The biggest takeaway from the Tilray conference call is that the thing to potentially make you a marijuana millionaire may be a lot closer than you think. Before I discuss this big thing, let us build the background that investors need with the help of a chart.
Please click here for an annotated chart of Tilray’s stock. Please note the following:
• At this time, it is all about the sentiment, and this is where the chart becomes helpful. For those who disagree, please answer this question: “How can Tilray, which reported $9.7 million in sales, have a multibillion-dollar valuation?”
• The best way for investors to figure out what is really going on with sentiment is to look at net supply and demand in real time. The most sensitive indicator to measure supply demand in real time is the VUD indicator.
• The VUD indicator is shown on the chart. When the VUD indicator is green, it indicates net buying. When the VUD indicator is orange, it indicates net selling.
• The chart shows the breakout in Tilray’s stock and the subsequent big rise in the stock price.
• The chart shows that for most of the rise in the stock price, the VUD indicator was green, indicating strong net buying.
• The chart shows that prior to the earnings, the VUD indicator turned orange, indicating strong net selling.
• The chart marks the time when Tilray earnings were released.
• The VUD indicator turned positive immediately after the earnings were released.
• The chart marks the time when the conference call started.
• The chart shows that the VUD indicator became more positive when the conference call started, indicating more buying came in.
• The chart shows the resistance zone.
• Tilray’s stock price will have to rise above this resistance zone on heavy volume for a couple of days for the stock to take the next major “up” leg.
• If Tilray’s stock fails to break through the resistance zone, it may pull back to the support zone shown on the chart.
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Gain an edge
One of the major problems that investors face these days is that everyone has the same information if they use traditional fundament and technical analysis. Such traditional analysis no longer provides an edge unless you are really good at it. Investors can gain an edge by observing money flows segmented by the momo crowd, smart money and short squeeze. Please see “11 marijuana stocks’ money flows show which are investor favorites.”
Tilray reported earnings and revenues worse than the whisper numbers. The whisper numbers are different from the well-publicized consensus numbers. Stocks move based on the difference between the whisper numbers and reported numbers. If Tilray was not a marijuana stock, it would have crashed on the numbers it reported. But marijuana stocks, including Canopy GrowthCGC, +2.79% Aurora Cannabis ACBFF, -1.53% Aphria APHQF, +5.28% Cronos Group CRON, +8.33% and Neptune Technologies NEPT, +4.12% are no ordinary stocks. And marijuana ETF MJ, +1.39% is no ordinary ETF.
These stocks are nothing like the stocks included in the Dow Jones Industrial Average DJIA, -0.09% S&P 500 SPX, +0.01% and Nasdaq 100 NDX, +0.16% It is all about the future and not about the minuscule earnings that are being reported now.
The biggest thing on the horizon for marijuana is federal legalization of marijuana in the United States. It was said on Tilray’s conference call that federal legalization is a lot closer than most people think.
Investors, this is not my opinion, but coming straight from the company that should have close tabs on this matter. Imagine no legal restrictions in the United States on cannabis. Imagine people freely drinking marijuana drinks instead of beer. Imagine Americans enjoying marijuana-infused chocolate. Imagine people not running to pharmaceuticals but instead relying on marijuana for some common medical needs such as pain management and anxiety. Folks, this will be big when it comes. Today the states regulate marijuana. Some have approved retail sales, and others allow medical-marijuana sales. But there is no federal-level law.
So by now you are motivated to gain the knowledge and put in the effort that it will take to succeed at investing in marijuana. You already know that you need to stay away from “pumps and dumps” that are becoming commonplace in marijuana stocks. You just want to know how to do it the right way. Please see “How to potentially become a marijuana millionaire, albeit carefully.”
According to the algorithms at The Arora Report, a big part of the rise in marijuana stocks has been short squeezes. In a short squeeze, short-sellers cover their positions, driving up the stock. Such moves are not sustainable in the long term. Less-informed investors who do not recognize short squeezes often end up with losses.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.