spreck

Is MJ about to get high?

Long
AMEX:MJ   ETFMG Alternative Harvest ETF
Marijuana stocks have been on the decline for a while, but things may soon start turning around.

Last month, the House Judiciary Committee advanced HR 3617 or (MORE) Act of 2021, a bill that repeals the long-standing federal prohibition of marijuana by removing it from the Controlled Substances Act — thereby ending the existing state/federal conflict in cannabis policies and providing state governments with greater authority to regulate marijuana-related activities, including retail sales.

What the MORE Act Does: The legislation’s provisions remove marijuana from the federal Controlled Substances Act — thereby eliminating the existing conflict between state and federal marijuana laws and providing states with the authority to be the primary arbiters of cannabis policy within their jurisdictions.

If passed HR 3617 would facilitate the expungement of low-level federal marijuana convictions, create pathways for ownership opportunities in the emerging regulated industry, and allow veterans to obtain medical cannabis among other things.
Source

I chose MJ to gain exposure to the global cannabis industry.
AUM: 1 Billion

TOP 10 FUND HOLDINGS (%)
Grow Generation Corp: 9.66
Tilray Inc: 9.43
Canopy Growth Corp: 7.80
Aurora Cannabis Inc: 6.61
Cronos Group Inc: 6.42
Hexo Corp: 4.76
Organigram Hldgs Inc: 4.20
Village Farms Intl Inc: 3.92
22nd Centy Group Inc: 3.46
Arena Pharmaceuticals Inc: 3.26

Prospectus
Fact Sheet
Holdings

Technicals
  • Price action and RSI diverging for the past three months with PA finding support at about $14.00 since the bill was advanced
  • RSI moving to potentially break above 50 and could correspond to a breakout of the descending wedge
  • Price holding at about the Fib Extension level of 61.8%, will watch these levels closely as PA advances or declines

The Trade
With confidence that there will be further potential bullish sentiment for the cannabis industry on the horizon, I will be preempting a breakout and taking a position at current levels.
Bull Case
  • TP1 set at about $17.50
  • TP2 set at about $25
  • Anticipate resistance at about $16-$17
  • Will be watching price action closely below the $17.50 region as a substantial pullback could fill out a possible right shoulder of a head and shoulders pattern before retesting trend line and breaking low.
Bear Case
  • Price action rejection at resistance level at around $15.50 could push price down and make lower lows on the daily chart
  • If a price drop occurs, I will be watching for support at around the $13.50 region or Fib 50% level
  • Will look to exit position if weekly close is below $13.00 with RSI levels pushing down to or below 38.2
  • Approximate risk of loss on trade from current levels is about 12%-15%
Trade active: Price rejected at ~$15.00, a bit lower than the anticipated $15.50 resistance level described above.

While lower lows were realized, price has found support at $13.60, a hair above the $13.50 support level I'll be watching closely.

That said, Price action and RSI are still diverging (illustrated in yellow on above picture) with RSI finding support on identified wedge (in white).

Trade is still open and will be watching for one of three things to happen:
1. Significant volume coming in and pushing RSI up above 50 (likely to correspond with a break of $14.50 or higher), after which I will be watching for confluence in PA/RSI.

2. Price continues to make lower lows while RSI continues to diverge and make higher lows. In this case I will be watching the 50% retracement level for support and potential weekly close below $13.00 with with RSI levels pushing down to or below 38.2 to exit position

3. Price drops significantly and confluence in PA/RSI occur to the down side. In this case I will be watching closely for a bounce at support around $13.00. Will reevaluate trade at that time.

My basis is currently at $14.64 with the trade currently holding a 5.9% unrealized loss.

Still holding, will update in about a week or upon exit of the trade.