Don’t fight the tape is an axiom an old mentor shared with me as a young stock broker. In other words, don’t try to outsmart the market, buy when it’s going up and pile up cash when prices slide. The reality is that the market is always right.
Despite many clickbait headlines predicting the next crash, the three major indexes continue to flirt with and then bust through to new highs. The Dow finally made its way to the better side of 29,000: for bulls, anyway. Meanwhile, the S&P 500 and NASDAQ are treading on their recent, all-time highs.
Moreover, all our models remain bullish; however, upward momentum appears to be waning. It would not be surprising to see some profit taking in the near-term now that the DOW has conquered 29,000. Sometimes, slaying a milestone triggers selling.
Now that the trade war with China seems to be on the shelf until after the Presidential election and WWWIII with Iran on hold, for now, earnings will likely dictate the market’s next move. Analysts forecast a strong 2020 with nearly 15% “as reported earnings” growth for the year.
So far so good. Twenty-eight S&P 500 companies revealed their latest quarterly reports cards, 23 reported better than expected profits and 20 recoded more revenue than predicted. If early results are indicative of what’s to come, then DOW 30,000 could be in play by before spring break. As such, any near to intermediate selling could be viewed as a buy the dip opportunity.
Last week’s call on SPDR S&P Pharmaceuticals ETF (XPH) looks good right now as the number two performer on our watchlist, up more than 5% in the last week. Our other highlighted exchange traded fund, SPDR S&P Transportation ETF (XTN) held its own as well, number seven on our leaderboard with a 2.4% gain for the week.
ETFMG Alternative Harvest ETF (MJ) topped the chart on some big volume, gaining more than 8.5% in the last five trading days. MJ tracks the Prime Alternative Harvest Index and the performance of companies in legal, global medicinal and recreational cannabis industries.
MJ could offer investors an attractive reward to risk ratio based on it 52-week range. The low is $15.95 with a high of $39.25. As we type, the ETF trades at $18.75. That’s potential upside of more than $20 and around 3 bucks downside, or close to a 7:1 reward to risk.
Many times, intense volume near a 52-week low signals a reversal. Patient investors might wait to see if ETFMG Alternative Harvest ETF (MJ) backs off a touch, maybe back to its 50-day moving average of $17.12. If it can pop and close above $20, a trip to its 200-day average of $25ish could be on the itinerary.
Many stocks in the ETFMG Alternative Harvest ETF are on the move. Obviously, the cannabis space isn’t for all investors. It’s also a high risk, high reward sector as 2018’s gains and 2019’s losses proved. Most MJ companies don’t project to be profitable in the near-term, which adds to volatility.
We screened MJ’s holdings to identify the companies generating a return on equity (ROE) of more than 10%, a positive return on investment (ROI), projected revenue growth, and have charts that suggest possible upside.
Our favorite that qualified for “all of the above” criteria is Cronos Group Inc. (CRON)
Cronos Group is an investment company that invests in licensed companies or those actively seeking a license, to produce medical marijuana pursuant to Canada’s Marijuana for Medical Purposes Regulations.
CRON’s ROE stands at 31.88%, ROI at 31.8% and is projected to increase revenue by at 266% in 2020. Its price just broke out of a long downtrend on surging volume. CRON trades at $8.34 at the moment, with a 52-week range of $6.04 to $25.10.
Based on its 52-week high and low, shares could offer a reward to risk ratio of $16.76 upside and $2.30 downside or a little more than 7 to 1 reward to risk. Those are the types of ratios high risk investments should offer. If you get one or two right, they can make up for a few stink-bombs.
As always, do your homework and check with your financial advisor before investing.
May all your trades be profitable,