Bigger Picture

Today”s filter is…Trial by fire.

Pullbacks and corrections have a cleansing effect. Trends don”t play-out in straight line, and must occasionally retrace — and often consolidate sideways — before resuming the trend to its completion. 

Those retracements help to rid the trend of its less committed “sponsorship.” In the case of an uptrend, the dips help to attract new sponsorship at relatively cheaper prices.

But that”s not the cleansing effect.

Extended super-duper outperforming rallies tend to pull along most every related stock. A famous stock market quote summed that up as “Bull markets make geniuses of us all.” Those rallies tend to be followed by deeper and at times steeper dips. Drops.

The more harrowing those drops, the more destructive their effects. Not only on price, but on participation. Not only participation from the fringes, but participation of every related stock. As the drop is extending, participants look more critically at just what the h3ll they”ve been buying so indiscriminately.

After retracements, not all stocks continue their rallies. And not all stocks that continue their rallies will have as much participation. But those stocks that do resume rallying — especially those among the first to resume — and those that exhibit the highest volume, tend to have passed the scrutiny that is as deep as the retracement in prices.

In our space of marijuana stocks, this is especially important. More companies than we want to believe will not survive the influx of competition and innovation. Many of yesterday”s bigger performers were only beneficiaries of being there at the right time. Many of those may have or get what it takes to remain competitive. Those will tend to be the better performing stocks after a deeper drop puts them (and us) all through a trial by fire.

Thursday”s Need to Know video begins with a look at life beyond the sound proof walls of our marijuana stock trading den. The broader market is finding its rally isn”t resuming quite as quickly or as bulls would prefer. And that”s impacting our play space. I examine that, and then discuss the following stocks, including one short-sale candidate:

DEWM BO
LATF BO
SKTO BO
SPLI BO
STEV BO
CANN EA (short)
MDBX EA
ATTBF PB
CBGI PB
GWPH PB
MCIG PB
PHOT PB
TRTC PB

AFTERNOON RUSH –new start time– –3:05 ET–
Is a stock”s price action today concerning or interesting you to consider taking action? You might already be able to find relevant parameters by scrolling the Activity Feed (you should be doing this anyway). If not, then post the symbols and specific questions (please, not just symbols) to this Alert”s comments section. I”ll answer those that allow me to address the most questions in the brief window available. I”ll start at 3:05pm ET.

ATTBF — Its 1.50 pullback objective has been a long time coming, but it was tested at this morning”s open. That might be the end of it, but I”m going to watch for its retest to consider buying. Meanwhile, I don”t mind missing it and paying up for any nominal assurance that a recovery is underway. Closing today above 1.75 would confirm momentum has reversed back up.
STEV — Didn”t mention in today”s video. Perhaps the “watched pot not boiling” principle is at work, or its inverse, because it is probing Monday”s high on expanding volume. That was the breakout”s confirmation, so there is no bullish excuse not to extend higher intraday.

Filter THIS! …a pre-open missive that tells you one thing, the most important thing, if you had to filter your view of today”s marijuana stocks price action through just one thing — okay, sometimes two — what would that one thing be? [See the blog for prior daily Filters]

Today”s one thing is… capitalism”s circle of life. Or, sometimes the fish shoot back.

I”ve said here before that many “penny” stocks are being very responsive to traditional technical analysis and charting. I think the big reason is liquidity. The sector is attracting so much investment capital, that their price discovery is ongoing.

We saw this when the Biotech sector exploded in 1990, and when the Internet sector took off1995. And we saw this influx of stock buyers attract an influx of stock to buy — existing companies getting into the sector, and companies forming to compete. Join the club!

These offered great lessons in how capitalism is self-regulating — actual capitalism, not the stereotyped cartoon painted by proponents of different political systems. After more money attracts more companies to buy, the effects of that money becomes limited. That limited effect then inhibits newer companies, which eventually allows the sector”s money to be productive again — but more selectively.

I don”t think the marijuana sector is anywhere near the end of the first phase, in which new companies dilute the effects of so much investment capital. But I do notice stock requests are including more and more new companies, so the phase is definitely underway.

We”ve been unusually conditioned to think this will always be as easy as “shooting fish in a barrel.” That”s every market”s goal, always. Currently, it is almost that easy. But stay in touch, because capitalism”s circle of life is a fact of life, and I want you to be aware when I start seeing the fish arming themselves.