Why Tilray Stock’s Epic Slide Will Eventually Reverse

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The TLRY stock chart is uninspiring but the scoreboard doesn’t tell the whole story

Friday was a big up day on Wall Street, and that was a surprise to many. The prevailing meme coming into this week was to expect a selloff. So far, the skeptics are wrong short of a last-minute crash today. Tilray (NASDAQ:TLRY) stock also had a good day up 1%.

In the meantime, I have concerns from the shorter term price action. Firstly, I didn’t like how it lagged Canopy Growth (NYSE:CGC), which Thursday closed up 3% in comparison to TLRY’s 1%. Secondly, it started Thursday very strong and unnecessarily faded to close on a weak note. Under normal circumstances that wouldn’t bother me as much. However, it is becoming a habit. After the drubbing it has taken for months, I expected better. However, I still was not happy with the outcome because of its relative performance. But first, I will state that I like TLRY stock in the long run.

This Is Still A Bullish Market

In spite of growing concerns, the current macroeconomic scenario still favors the bulls. Don’t take my word for it, just check the action in the charts. They say “price is truth,” and so far the major indices go from lower left to upper right. The game might feel tipping in the bears’ favor, but the scoreboard doesn’t lie: The S&P 500 is still 2.5% below its all time high. There is no way to interpret that as a dying bull market yet.

Inside that setting, cannabis stocks should have better days coming. These stocks have endured a lot of pain in the last two years. It is important to note that the massive drop in TLRY stock is not its fault. Investors are avoiding the whole sector. Long are the days when it super-spiked to $300 per share. GameStop (NYSE:GME) would have been proud back then.

We have to remember that these companies are still an illegal gang in the U.S. The White House needs to act on that sooner rather than later. The legalization headline will not immediately solve all their problems. But it will unshackle their teams to operate freely and at par with other sectors. Tilray and its cohort undoubtedly have tremendous inefficiencies they cannot overcome under current laws.

Up until recently I preferred CGC out of the bunch. However, in the last year, I have switched to preferring TLRY stock instead. My perception is that they were able to do more with much less. I took that as a sign of a stronger management team.

Own TLRY Stock for the Long Term

Near $10 per share, TLRY makes for a an intriguing long-term thesis. The whole sector moves pretty fast and in both directions. Therefore, this is not an appropriate stock for all investors. Not everyone has the intestinal fortitude to withstand such volatility.

I don’t like to take risks without having a discernible edge. Make no mistake about it, buying shares or call options is a competition. It is my duty to make sure that I have one leg up on my opponent. Whatever I’m doing with TLRY stock, someone is on the other side of the trade who thinks I’m wrong. Without proper due diligence I would lack conviction in the current opportunity.

While the indices are bullish, the pot stock scoreboard currently favors the bears. I know I am coming at it from relative weakness. The stock has been setting a series of lower-highs and lower-lows for months. The bulls are trying to establish a floor at $10 per share. But there is no tangible evidence of that happening yet. In addition, there is an old gap from January that extends into the single digits.

In the long run, whether it bottoms here or at $9.50 is not going to matter. My conviction is medium at best in the bullish thesis for it now. This is partly due to the fact that markets are near all-time highs going into a taper process. The higher we go from here, the more likely the odds of a correction. TLRY stock cannot rally on its own if the markets are falling.

Until they start ringing bells at bottoms, investors will do well to be moderate. Taking partial positions now would be a good start. It is important to leave room for error in case the pain continues.

This article originally appeared at InvestorPlace.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.