Revisiting Our October 23 Four Stocks To Own Article – Part I

Just before the US Elections, we authored an article related to four stocks/sectors that we thought would do well immediately after the November 2, 2020 elections.  The article highlighted how sector rotation in almost any market trend can assist traders in finding solid trading triggers.  We picked four stocks from various sectors for this example:

AAL American Airlines Travel/Leisure
ACB Aurora Cannabis Cannabis
GE General Electric Industrial/Specialty Industry
SILJ Junior Silver Miners ETF Precious Metals Miners

When you review my article from October 23 and the November 6 follow up article related to these stock picks, you will quickly see that all of these stocks exhibited similar types of technical patterns.  They were all bottoming in an extended rounded bottom formation and had all started to near a Pennant/Flag Apex in price.  Additionally, many of them, with the exception of SILJ, had set up a very clear RSI technical divergence pattern over the course of setting up the extended bottom in price.

My research team and I selected these stocks because of key expectations related to the post-election mentality of investors related to various sectors.  First, the cannabis sector had a number of new US states approve cannabis legislation – providing for an expected increase in business activity for the entire cannabis sector.  Second, no matter who won the election, another round of stimulus was likely to be approved resulting in increased economic opportunity for companies like GE and AAL.  The Travel and Leisure sector still had its risks as a surge in COVID cases could greatly disrupt future travel expectations.  Junior Silver Miners was our “hedge trade”.  If none of these other stocks started to rally, then Silver Miners would likely move 15% to 20%+ higher over time.

We thought it would be a good time to check in with our picks to share the importance of using sector trends to your advantage.  Currently, there are dozens of sectors that are either in a solid bullish trend or are shifting into new bullish trends.  Being able to catch these setups early and having the confidence to act on these trends is very important. We highlighted some of these setups in our October 23 article, but they happen all the time in various market sectors.

What is important is being able to see the setups, identify the sectors that have the strongest capability for future trends, then determining if you should trade the Sector ETF or some individual stocks within that sector.  Generally, the Sector ETFs provide enough liquidity and opportunity that you don’t need to worry about the individual stocks.  Yet, sometimes, applying the same techniques to the strongest sector stocks can add a very valuable component to your trading.

Below, we have highlighted the accomplishments of each stock symbol over the past 60+ days.  For this example, we will estimate a $20k allocation for ALL TRADES ($5k each) and use a simple 33% target allocation for Target 1, Target 2, and the Trailing Remainder.  That means, we take 33% of the position off at Targets 1 and 2, then let the remaining 33% trail with a protective stop.

Symbol Entry Price Target 1 % Target 2 % Last Price %
AAL $12.60 39.81% NA 22.44%
ACB $4.68 124.35% NA 114.72%
GE $7.63 22.77% NA 48.56%
SILJ $14.68 NA NA 10.11%

Our $20k sample account would look something like this right now…

Symbol Entry Price Target 1 $ Target 2 $ Last Price $
AAL $12.60 $656.87 NA $6,408.61
ACB $4.68 $2,068.28 NA $10,802.59
GE $7.63 $375.71 NA $6,995.44
SILJ $14.68 NA NA $5,505.50
Total => $29,712.14

Overall, this represents a +48.5% net account profit in just over 60 days by focusing on sector trends and rotations.  In the future, if any of our higher Target levels are reached, we’ll pull another 33% of these trades and lock in these gains while we let the remaining position carry forward with a trailing stop.  The trailing stop should be based on the last completed target level reached.  For example, if Target 1 is reached, then the stop should be placed just below the Entry Price level.  If Target 2 is reached, then the stop should be placed just below the Target 1 level and it should begin to trail higher as new price highs are reached.

Usually, we will pick an exit price level based on some type of trend failure or reversal point.  In most cases, this happens when the longer-term (Weekly based) moving averages change direction and price activity displays a clear technical pattern showing the bullish trend has ended.  Most traders are capable of determining their own exit points using technical indicators and other tools as they wish.

When some sector is trending very strongly, we don’t want to attempt to second guess the peak level or end of the trend.  We just want to ride that trend for as much profit as we can – unless some other sector sets up a new opportunity where we can better deploy our assets for profits. We like to let the trend work itself to an eventual end and use our Target Levels to lock in gains along the way.

American Airlines Trade

The following Weekly chart of American Airlines (AAL) highlights the simple trade we suggested on October 23, 2020.  As you can see, the upward sloping lows in price aligned with the upward sloping RSI trend (in the lower pane).  AAL has reached our first target level (the MAGENTA line) and has recently settled near $15.13.  Our stop level should be just below our entry price level, near or below $12.60 at this time as we wait to see how the bullish trend continues.

In Part II of this article, we’ll go over the remaining three stock symbols we initially suggested on October 23, 2020 and highlight even more details related to sector trending.

Many years ago I was researching Japanese Candlesticks and the teaching of Seiki Shimizu (The Japanese chart of charts: Shimiz) settled well with my thinking.  In his writing, he suggests that more than 60% of the time traders are waiting for new setups/trades.  This is something that many traders need to fully understand in order to balance aggressive trading tendencies with their abilities to create profits and protect assets.

If this theory is correct, then trades only need to focus on the 30% to 40% of any 12-month span of time  (three to four months) where the bigger sector trends/trades setup and initiate.  Otherwise, these trends may continue, in some form, over the remainder of the time to generate profits (or not).  This type of thinking suggests that traders only need to focus on the best immediate setups in any market trends/sectors and ignore the “froth” in the markets on a day-to-day basis.  Doing so will allow most traders the freedom to create profits by taking skilled and effective entry triggers while being able to enjoy life, family, and other hobbies.

Trading does not need to be a full-time, 24/7 effort.  The global markets generate big sweeping sector trends sometimes 2 to 4 times a year as capital moves in and out of various trend cycles (short, intermediate, and long term).  All we have to do is find the best sectors to trade, then wait for the trigger/entry setup. Now, imagine what it would be like if you could accomplish something like this every week or month with technology? You can with my BAN Trader Pro strategy and Hotlist.

BAN Trader Pro can help you identify and trade the Best Asset Now.  The BAN Hotlist helps us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to profit from sector rotation with my strategy. You can sign up here for my 100% educational webinar for free.

For a look at all of today’s economic events, check out our economic calendar.

Have a great week!

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Aurora Cannabis Inc Gets Smoked After Announcing Share Offering

Aurora Cannabis Inc. (ACB) plunged 7.71% Wednesday after the Canadian-based marijuana company announced it plans to sell more shares for growth opportunities, working capital, and other corporate activities. Under the proposed $125 million capital raising, Aurora expects to sell each new share for $7.50 with an attached warrant that allows the buyer to purchase another share for $9 within 40 months of the close date. However, the company said final terms would be finalized at the time of pricing.

Since the Nov. 3 U.S. presidential election, the stock has been on a high in anticipation of a cannabis-friendly Biden administration and reporting quarterly sales that came in well ahead of expectations. While the company’s fiscal Q1 revenue of $52.2 million declined 10% from a year earlier, the figure comfortably topped Street forecasts of $48.9 million. Moreover, Aurora said it expects to reach positive adjusted EBITDA next quarter.

As of Nov. 12, 2020, the stock has a market capitalization of $1.23 billion and trades up a massive 73% over the past week. Despite the recent surge, the shares have tumbled 70.45% year to date (YTD).

Wall Street View

Earlier this week, Cantor Fitzgerald’s Pablo Zuanic lowered his price target on the stock to C$12 from C$13 but reiterated the firm’s Neutral rating. The analyst cited disappointing Canadian recreational and medical cannabis Q1 sales along with a declining market share in the recreational business for the downgrade.

However, Zuanic likes the company’s shift from value to premium pot offerings. “The volatility notwithstanding, we think the relative valuation [versus other pot companies] leaves little downside,” he wrote in a research note to clients cited by Barron’s.

Elsewhere on the Street, other analysts also sit mostly on the fence. The stock receives 14 ‘Hold’ ratings, 1 ‘Overweight’ rating, and 4 ‘Sell’ ratings. Price targets range from a high of $12.34 to a low of $4.99. Wednesday’s $7.66 close offers a 5.7% premium to analysts’ 12-month consensus target of $8.10.

Technical Outlook and Trading Tactics

Since forging a 5-year low beneath $4 in late October, Aurora shares have staged an impressive upside reversal on heavy volume, breaking above both a multi-month downtrend line and the 200-day simple moving average (SMA) – albeit temporarily. In the past few trading sessions, profit takers have moved in as investors digest the company’s Q1 earnings and yesterday’s capital raising announcement.

Active traders should view the current retracement as a “buy the dip” opportunity, given price action has flipped the downtrend line from resistance into support at the $6.70 area. In terms of trade management, consider placing a stop-loss order beneath last month’s low at $3.71 and targeting a move to crucial overhead resistance at $18.

Four Stocks To Consider Buying Before The US Elections

Our research team put together this list of stocks to help you understand how to attempt to target strategic gains between now and 30 to 60 days after the elections. If you have not been paying attention to what is happening in the markets right now, be sure to read to the end of this report.

If you have not already prepared for the election event, and the pending chaos that is likely to happen after the elections, you better start doing something to protect your portfolio right now. Leaving your portfolio exposed in the moderate to high risk sectors in your IRA or 401k could result in some wicked risks to your total capital if you are not cautious.

ARE YOU READY FOR A VOLATILTY SPIKE AND THE RISKS TO YOUR PORTFOLIO?

Personally, I’ve been getting calls from my family and friends over the past few weeks urgently asking me “what should I do with my retirement money?” and “how should I protect my assets before the elections?”. My family knows if they do nothing to protect their capital, the could be exposed to a -20% or -30% draw down if the market moves lower after the election. We don’t know of anyone that wants to ride out another -20% to -30% correction in the markets – right?

Well, if you are interested in taking a small portion of your capital and attempting to profit from these four simple stock picks we’ve identified, you may feel quite a bit better about how you managed your capital throughout the election event and over the next 30 to 60+ days.

First off, each of these symbols targets key benefits we believe will take place (or have a moderately high likelihood of taking place) after the elections. Secondarily, each of these symbols has setup a very clear technical pattern that suggests “the bottom is in”. Lastly, we’re only including FOUR symbols that we feel are properly hedged for risk – we’ll explain everything in more detail as we go through each symbol. Each of these chart will show very clear support levels in BLUE on each chart. Use your best judgment to identify proper stop levels for each of these setups. You must allow room for the trade to mature and initiate a rally attempt in order to secure the profit potential. It should be fairly easy to see the opportunities in each of these picks. Let’s get started.

American Airlines: AAL Weekly Chart

Airlines are going to benefit from the stimulus package that will be secured shortly after the elections. One way or another, the US government must support essential transportation services through any extended economic shutdown or further COVID economic collapse. There will be some rescue package for the airline sector, we believe, within 30 days after the elections.

The basing support level, shown by the lower BLUE line on this Weekly chart, highlights the upward price trend that we believe support another attempt at a price breakout (higher). We believe the news of a stimulus package that supports an Airline rescue plan will prompt a moderately strong upside price move that could target +35% to +65% levels from the current $12.72 price levels. Ultimately, key resistance exists near the $28.50 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

Aurora Cannabis: ACB Weekly Chart

The cannabis sector may benefit from a change at the state and local government level. The extended basing support level and Pennant/Flag formation, shown by the lower BLUE lines on this Weekly chart, highlights the upward price trend that we believe supports a price breakout attempt (higher). We believe the potential for ACB to begin a new rally will initiate shortly after the US elections and will prompt a moderately strong upside price move that could target +115% to +235% levels from the current $4.88 price levels. Ultimately, key resistance exists near the $32.76 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

General Electric: GE Weekly Chart

General Electric Company may benefit from any new infrastructure plans related to new policy/plans on the federal/state level. The extended basing support level and Pennant/Flag formation, shown by the lower BLUE lines on this Weekly chart, highlights the upward price trend that we believe supports a price breakout attempt (higher). We believe the potential for GE to begin a new rally will initiate shortly after the US elections and will prompt a moderately strong upside price move that could target +25% to +55% levels from the current $7.39 price levels. Ultimately, key resistance exists near the $18.05 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

Silver Miners Juniors: SILV Weekly Chart

Junior Silver Miners are the “Hedge Trade” component for this simple portfolio. We believe Silver and Silver Miners will initiate a new upside price rally very shortly after the US elections and we believe this trade is an efficient “hedge” to the risk associated with the other three symbols in this simple portfolio. The extended basing support level and Pennant/Flag formation, shown by the lower BLUE lines on this Weekly chart, highlights the upward price trend that we believe supports a price breakout attempt (higher).

Silver miners should perform well once the price of gold starts a new uptrend and starts to rally towards $2200 price level. Fibonacci extension measured moves allow you to forecast where gold should rally to next as shown in this Sept 23rd article. We believe the potential for SILJ to begin a new rally will initiate shortly after the US elections and will prompt a moderately strong upside price move that could target +35% to +65% levels from the current $14.98 price levels. Ultimately, key resistance exists near the $32.95 level. Therefore, we believe this resistance level will act as a major future price ceiling going forward.

Concluding Thoughts:

We hope you find the value in these four simple picks we have presented and understand how you can help to protect your investment portfolio by allocating a small portion of your portfolio into these opportunities. There is no guarantee that these picks will rally as we expect. There is no guarantee that the COVID-19 infections won’t skyrocket again – potentially shutting down the global economy again. You have to use your skills and abilities to manage these trades ON YOUR OWN. We are just showing you four potential trade setups that we believe have a strong likelihood of initiating an upside price move near or after the US elections. We hope you strongly consider the message we are trying to convey to you – protect your assets and prepare for extended volatility.

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen

Chief Market Strategies

www.TheTechnicalTraders.com

 

CBD Prices Weighed Down by Rising Supply in 2020; Industry has Huge Growth Potential

According to Leafreport, over two-thirds of brands slashed their prices this year to some degree. The report also said CBD prices plunged 17% in 2020 from last year, except prices for pet edibles which surged 44%.

Moreover, the decline in prices for hemp biomass, falling production costs and firms’ aim to reach low-income household amid rising jobless rate due to the ongoing COVID-19 pandemic have also contributed to this year’s drop.

Indeed, owner of CBD company Kind Lab, Angela Arena in an interview with Leafreport, said that one of the most significant reasons for CBD’s steady price decline in 2020 is that more hemp suppliers have entered the market since the passage of the 2018 Farm Bill legalized hemp cultivation. With the increased access to hemp, more and more CBD brands were able to enter the market.

Kind Lab’s Arena further stated that “prices were so high because the supply was so low, but we’re starting to see that drop, especially as people get creative and find ways to produce lower-cost products and introduce those into the market, it’s going to become a lot more price competitive,” noted Leafreport.

According to Hemp Benchmarks, an overall price of hemp CBD biomass plunged about 80% from April last year to April 2020 – dropped to $8.1 per pound from $38.0 per pound.

There are other factors that influence the pricing decision of a CBD product – the underlying costs associated with certain certifications, quality testing with third-party and merchant fees that factor into the sale of the product at clinics and online.

“A good way to make sure a CBD product is worth the money is to check how it is advertised. It’s always worth checking if the label says USDA Organic certified and if the brand publishes their certificates of third-party analysis (COAs) on their website. Also, as Terwilliger notes, look for a little orange stamp that says U.S. Hemp Authority Certified. This third-party organization evaluates the transparency of a brand’s testing protocol, quality manual, marketing, and more,” Leafreport added.

Investment in Emerging Cannabis Industry

Cannabis is an emerging industry and is subject to regulatory headwinds. Although the industry is still emerging, legal cannabis has gone through multiple iterations. The business started as a flower-based market aimed at catering to the needs of stoners and thereafter, blossomed to a more retail-centric market that experimented with multiple edibles, beverages and concentrates.

Most recently, the cannabis industry has further widened its reach to target a broad base of the audience whose main aim is not to get intoxicated but rather to be cured of some form of the diseases.

While over half of the population is in favour of new the legalization, only a few states have thus far legalized cannabis for recreational use and the product remains illegal at the federal level.

Much work and changes are still required to occur for this industry to realize its full potential.

“If you are considering investing in a U.S. company that is connected to the cannabis industry, be aware that cannabis-related companies may be at risk of federal and/or state criminal prosecution. The Department of Treasury has issued guidance that The Controlled Substances Act (“CSA”) makes it illegal under U.S. federal law to manufacture, distribute, or dispense cannabis and cannabis-related products. Many states impose and enforce similar prohibitions. Notwithstanding the federal ban, however, many U.S. states and the District of Columbia have legalized certain cannabis-related activities,” said Eric Assaraf of Cowen and Company.

Based on Jefferies Virtual Cannabis Summit, which hosted over 200 investors on Oct 7-8, the first point of the panel discussion was the Cannabidiol market size in the United States. There was a range of different estimates but the panellists were largely consistent about their growth predictions for the industry post-COVID-19, expecting it to grow at CAGR of 20%-25% over the next five years on a conservative basis and 30%-40%, when speaking optimistically.

The panellists were also on the same page when discussing the end uses of Cannabidiol which are quite profuse and span across personal use goods, medical products and CPG products. The CBD penetration right now is only 15% of households and therefore there is a big untapped opportunity for the industry to capitalize on, Jefferies added.