Filter This! (Wed Mar 26 2014)

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.