Charting Man Dan McDermitt, founding partner and analyst with the Chart Guys, praises the recent media blitz by Curaleaf Holdings Inc (CNSX:CURA) (OTCMKTS:CURLF). Curaleaf announced multiple catalysts in succession, such as the investment of $11 million by institutional investor BlackRock, a major distribution deal with pharmacy chain CVS Health Corp (NYSE:CVS) (FRA: CVS), and the acquisition of Acres Cannabis. McDermitt observes that the PR blitz gained considerable attention for the company and he indicates it was a perfect play by Curaleaf’s management. The company’s stock has soared as a result and McDermitt believes Curaleaf is now the leading name among US MSOs. He addresses the recent $250 million Gotham Green investment in MedMen Enterprises Inc (CNSX:MMEN) (OTCMKTS:MMNFF) and explains how the news might shift momentum for the company, which missed out on the sector-wide industry upswing during the winter months.
James West: Joining me now via Skype from Asheville, North Carolina, is Charting Man Dan McDermitt from thechartguys.com. Dan, welcome again.
Dan McDermitt: Glad to be back.
James West: Dan, incredible week in the cannabis space. Why don’t we start with the – let’s start with the Fed move, and the effect that that had on broader markets.
Dan McDermitt: So yeah, the FOMC pretty much came out and said ‘We’re not going to raise rates in 2019’ which is what the market wants to hear in terms of, you know, having confidence, and we saw a significantly bullish reaction, but it’s been a very wild two days for the market overall, because in the initial reaction to the FOMC, it was all bull – and then at the end of the day, it dumped pretty hard. Then the next day, which was yesterday, it was all raging bull, some of the strongest buying that I’ve seen in one single day for the S&P 500, and now today it’s a complete dump again.
So in the past two days since the FOMC, we’ve seen straight bull, straight bear, bigger bull, bigger bear; so this just is overreactions in both directions, which are making it very interesting in terms of trying to get some clarity as where we’re heading in the short term.
James West: Sure. Historically, this kind of sudden upsurge in volatility, that generally either presages a psychotic break of sorts in markets, either to the upside or the downside. Do you see anything in your sort of charting that suggests, gives any sort of clarity on what direction we’re going to emerge from after this volatility subsides?
Dan McDermitt: Well, when I look at the monthly chart for the S&P 500, which is, you know, as long term as I will look, it looks like an equilibrium set up, and we’ll look at it in just a moment here. But the most likely scenario for me would be a lower high compared to the all-time highs, and then a pullback to a higher low with a bit of a tightening range.
So I’m looking on the shorter time frames for signals that are going to tell me that this is the likely scenario that’s playing out. And for me, it’s a weekly support level, which I’ll point out, that needs to hold, and that’s the most important level for me. So as I’m looking, you know, I’m personally looking to establish longer-term US MJ positions, I’m going to be looking very close to see if the S&P 500 is going to be entering this tightening monthly pattern, because if it is, that tells me to be very patient and, you know, scale in slowly, because we could be pulling back for the next month or two in the market.
And I think next week is going to give us a whole lot of clarity, because the two days since the FOMC announcement have been very back and forth, touch and go.
James West: And that’s had quite an effect on the cannabis sector, particularly for the multi-state operators in the United States.
Dan McDermitt: We’ve had a very interesting scenario in the past few days where the major Canadian LPs – we’ve got CRON and CGC breaking key daily support levels in their patterns, losing their daily uptrends, yet we have, you know, some US multi-state operators seeing some very significant bullish action yesterday, and some of them even holding up pretty well today. So the sector is going in different directions to a certain degree, but we are still seeing the effect of SPY, overall, you know, that it has, and right now it’s certainly giving us signs of caution in the marijuana sector overall.
James West: Mm-hmm. Curaleaf was a particular beneficiary of the bullish sentiment yesterday; what was the cause behind that?
Dan McDermitt: So Curaleaf put out this blitz, and it was really cool to see it happen, because whoever was behind that blitz understands markets. There are so many times where, you know, we’ll see something, and an example would just be OGI. Recently it, you know, blue-sky breakout, all-time highs for the first day, and then the next day, they put out news about raising funds for potential dilution incoming, which the market responded negatively to. So anybody that held overnight looking for blue sky breakout momentum, you know, was slapped on the wrists.
And we’ve seen now, since then, OGI has a pattern: at the end of the day selling off, because people aren’t wanting to hold it. So that is an example of a company doing, in my opinion, a poor job, you know, of managing their news releases, or timing of things.
But for Curaleaf, you know, we had news come out that Blackrock has an investment now, I think it’s around $11 million. We had news about a share lockup being kicked down the road, so those shares are not going to become free-trading as soon as we anticipated. We had dispensary opening news, we had CVS, which is a big, you know, drugstore here in the US, news; that was big news, as well. So they just slammed the market with everything. They scheduled to get on CNBC for a talk and it was just this PR blitz that gained a ton of attention. The stock price ran 30 percent to all-time highs and it was just, you know, a perfectly executed play by management, and perhaps Blackrock had a little helping hand in orchestrating that. But, really cool to see it follow through in the way that it has.
James West: Sure. And then today we’re seeing that MedMen has done a $250 million raise from Gotham Green Partners. Does that interest you at all in terms of future potential action in MedMen shares?
Dan McDermitt: Well, what interests me more than that news is the reaction to news in terms of price. So, I’m always watching trends, and I’m not going to be looking to establish any long-term positions in weekly down trends, and MedMen has clearly stood out as a laggard to the sector as a whole because it’s been in a weekly downtrend while everybody else has been in a weekly uptrend.
So now we’re shifting that momentum a little bit and we just broke the weekly lower high pattern, so I’m definitely keeping an eye on MedMen now because of that shift in momentum. So for some people, you know, that raise could be a fundamental catalyst for starting to have interest in MedMen, and for me, it’s the price reaction and the technical aspect that has me starting to pay more attention.
James West: Sure. And finally, I just wanted to ask your opinion about Aurora, who was formerly a client, is not a client presently, though I do have a long-term position in the company. Did the – it’s, you know, Nelson Peltz joins the Board and the stock adds $3 billion. To me that’s like, WOW! Is that addition to the Board worth $3 billion, or is that just some persistent upside sentiment as a result of that, or other things?
Dan McDermitt: We were all scratching our heads. You know, we were baffled at the size of the move by that news. But if you overlay the S&P 500 chart with ACB over the last two weeks, it’s clear that it’s had some very significant correlation with it in terms of the move that we saw to the upside. So it was almost like that news was just a little extra rocket fuel to continue pushing higher; the breakout was already underway before that news, and it is, it just, you know, added to it. But the S&P 500 played a large part in that move up over the past few weeks.
James West: All right. Let’s go take a look at the charts.
Dan McDermitt: So we’re starting on the S&P 500 daily chart, and we can see that we just had a little pull back, and there’s our big huge bull move yesterday matched with a big, huge bear move today. So, choppy action the past few days. And on the grand scheme of things, compared to the last three weeks where we came from, it’s not a huge pullback; it’s just, you know, adding some interesting psychology to the market where people are saying Wait a second, you know, the FOMC just gave us what the market wanted to hear. Now we’re saying the financial sector completely dumped, down 3 percent today, and there’s, you know, a certainty, and this is the kind of scenario where if everybody’s expecting bullish and then we start to pull back, you know, that spikes fear, you know. What’s going on, why is this happening.
But what I’m looking at is the monthly time frame. Like I said, the tightening range, I would anticipate just from experience, that the normal scenario after an all-out dump and this kind of volatility is an equilibrium. We see equilibriums and tightening ranges after high volatile scenarios. So this is looking like we may be topping out for a monthly lower high to form. If that was the case, we are going to look for confirmation of that happening with the loss of the weekly uptrend, and we just established a weekly support level; on SPY that level is 272.42. So that’s the most important level for me in the short term, because if we lose that support level, we lose the weekly uptrend, and then that monthly equilibrium is very likely to play out.
So if that happens, we will be looking for a monthly higher low to then form, but like I said, that could lead to a couple months of pullback while we look for that higher low to form. So the next two weeks, in my opinion, are going to be very telling as to whether or not the monthly equilibrium is the most likely scenario, or whether the bulls can continue to hold the weekly uptrend and try and see continuation back towards that all-time high.
James West: Mm-hmm. Wow, fascinating. Okay, and tell me about Curaleaf.
Dan McDermitt: So Curaleaf obviously had the huge bull day, the closeup at the high of the day, with a strong close, and then a big gap up open. And we’re looking at this space a little bit differently in terms of gap up opens; in the Canadian MJ space, we used to have very consistent gap up open scenarios, where you close at the high of the day and the gap up is when you open over the high of the previous day. And that used to happen all the time, and it used to be, you know, free money to a certain degree to us traders.
And then the market shifted a little bit, and I do believe that pre-market trading becoming a thing as all these names uplist made it, you know, less likely to see gap up open scenarios. But now we have these US MSOs that are not traded on exchanges that allow for pre-market and after-hours trading; so in my opinion, when we see strong closes like this, we’re going to have higher odds of gap up open follow-through than we would on the names that are going to be trading in pre-market.
So overall, it was just perfect timing, you know, blue sky breakout. Let’s look at the weekly chart where we just saw the all-time high. We consolidated, headed right back up to it, couldn’t break it, brief little pullback, and then an explosion. Again, that news blitz really doing its job and leaving its mark. And we’re now looking at Curaleaf to potentially be the leader in the US MSO space because of the attention, because of the dollar volume being traded. So we’re going to start watching for those correlation: can we get lead clues on what CURA is doing back like we used to on how Canopy would dictate what the Canadian MJ sector would do.
James West: Sure. Okay. And walk us through the scenario with MedMen, if you would.
Dan McDermitt: So, MedMen on the weekly time frame, has been on a clear downtrend where, you know, at this point in time, this is where everybody back in December back into January just saw some real nice bounces and real nice higher lows and higher highs on the weekly, and MedMen, through, for a number of reasons – whether it was, you know, some uncertainties about management and how they were spending money, or their earnings reaction was bearish – it was just a number of fundamental things that were piling up, and it led to a week little lower high, lower low pattern.
But at this point, the last weekly lower high was 4.47, which has broken at this point. So we’re going to be watching now: can this momentum shift? Because after resistance of 5.06, which is the highest price that we hit from the December dump, there is a lack of resistance nearby. So if the bulls would be able to make their way up over 5.06 sometime in the coming month or two, there is some nice upside potential with that momentum and sentiment shift.
James West: Okay, so does that make you a buyer today?
Dan McDermitt: Not today, not with what the S&P 500 does. I definitely put a lot of weight into the S&P 500. Today was a gap up open day; in general, a rule of thumb that we have is, gap up opens are for selling, gap downs are for buying. And that just keeps us from, you know, entering into FOMO and into hype when things are already over-extended.
So I will be looking for the potential of a daily higher low on MedMen to form compared to 3.92, and if we can see that daily higher low form, we’ll have that support close by. I would establish perhaps a stop loss based off of that support, and looking for things to settle down after the big gap up open, because the gap up open shifted as soon as we saw S&P 500 weakness this morning; and that has me just patient, watching what the S&P 500 is going to do, and looking for MedMen to give us that daily higher low.
James West: Right. All right, Dan, that’s a solid contribution as per usual. Really appreciate your time. Thanks for joining me again, and we’ll talk to you soon.
Dan McDermitt: Have a good one, James.
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