Cannabis Stocks starting to turn higher again
Technical Strategy Video:
Key Takeaways
- Thursday’s abrupt reversal doesn’t cancel the rally but does serve as a warning sign. Key will be SPX 4451 and QQQ-356.19, NDX- 14452
- Treasury weakness should persist a bit longer, with TNX targets at 2.25%
- Cannabis stocks look to be bottoming given the move to multi-week highs and a big uptick in momentum.
St. Louis Fed Chair Bullard’s ultra-hawkish tone set the stage for a volatile afternoon session in US Equities, US Treasuries and the Dollar which need to be watched carefully into next week. The Thursday afternoon break of 4512 in S&P Futures (4529.94-SPX Cash) causes some minor concern regarding the structure of this rally, yet it will depend on a break of last week’s lows (SPX 4451, QQQ-356.19, NDX 14452) before the trend would shift to bearish. Near-term, this dip should be bought until/unless SPX 4451 is broken, which would cause some downward volatility into late February before a March rally. At present, insufficient damage has been done to warrant concern technically, but the risk levels are easily identifiable for this trend.
Treasury weakness likely reaches downside targets into March before reversal
Treasury yields have begun to accelerate higher but haven’t met technical targets in price or time. Upside targets for TNX lie between 2.15-2.25%
My Cycle composite shows a peak in Treasury yields in the month of March which should cause a trend reversal in TNX, TYX
Utilities were hard hit given the back-up in yields, while Financials relatively outperformed. Meanwhile, Technology lagged and fell more than 2%. These areas of relative strength and weakness likely continue as long as the Treasury yield lift continues in the weeks to come.
Gold and Silver need to be watched carefully for the prospects of a larger decline in the weeks ahead if the US Dollar starts to turn back higher. Thursday’s “hottest” inflation data in forty years failed to cause the metals to shine; Rather, they declined sharply into the close as DXY rebounded. This could accelerate in the weeks to come. Key support for Gold is 1780.
Technology as a group has not suffered sufficiently to expect a meaningful period of lagging in this group just yet but holding XLK 157.44 will be key for the group into next week.
As this daily chart of TNX shows below, the breakout last month in US 10-Year Yields looked important, which was discussed in recent weeks in these reports. While momentum has reached overbought levels, a bit more strength in yields is likely in the weeks to come. It’s anticipated that Portfolio managers likely start to add duration on this yield lift and this move could very well reverse course post FOMC meeting in March.
Technology has not been adversely affected, despite the rip in Yields
Equal-weighted Technology ETF RYT has backed off a bit in trading after having reached initial resistance on Wednesday 2/9/22. As seen below, this area at the red line directly coincided with former lows in prices since November but also peaks in September 2021. Unless there is a break of RYT $287.90, or XLK 0.89% 157.44, this remains just some minor consolidation and not a bearish breakdown for Tech.
Finally, the Cannabis trade deserves a second look given this rally back to multi-week highs. Senate Majority Leader Chuck Schumer proposed legislation this week to legalize Marijuana at the Federal level and discussed making this a “priority”. Back in December 2021, I talked about MJ 2.87% , the ETFMG Alternative Harvest ETF as being an intermediate-term Long idea, and the bullish price action in the last week makes this more actionable as a trade at current levels vs two months ago.
Specifically, the act of having climbed over early February peaks is bullish technically, and MJ has broken minor three-month downtrends that have been in place since November 2021. Furthermore, weekly MACD (as a gauge of intermediate-term momentum) is crossing back to positive this week, exceeding the signal line. While further strength will be needed to surpass the long-term downtrend which has been in place since the February 2021 peak in Cannabis stocks as a group, (represented by MJ, the ETF) it looks appealing to buy and own MJ Technically given this progress as a 2022 rebound candidate, expecting some mean reversion higher after such a lengthy decline. Initial targets will be $15.78, the November 2021 peaks. Only a decline back under $9 would postpone this rally and serve as a stop for trading longs.
Stocks of particular technical interest to consider aside from the ETF itself are CGC 2.03% , TLRY, CURLF, and GRWG -1.73% .
