Charles Moon, Prosper Trading Academy, Cannabis Stock Risk, CA-45The Canadian senate vote on adult-use cannabis tomorrow will be important for current cannabis stock holders, but do not be surprised if we see a pullback at some point after the vote. How the vote turns out will be vital on whether you should be buying on the dip or remain more patient as we could see more of a risk off move.

Now, onto the vote this week. You may already have bought into names recently in anticipation the sector will “launch” if and when the vote is passed. There are other hurdles after the vote and there may not be full recreational available until the last quarter of the year. So, the move after the vote could be RISK OFF. Yes that is right. We may actually see the sector pullback after the initial jump. Traders and funds with large sized positions may look to unload some shares once liquidity floods the books. I suspect this could be the case this week. Gap open and then a possible washout.

Now, I am not betting for the stocks to go down. In fact, I have been a buyer in recent weeks based on my articles. So, I wanted to be long in the sector leading up to the vote. That is the problem for others. They are either waiting for the vote, or are planning to buy right before the vote itself. That is a bit of flawed thinking since a lot of the major names in the sector have already made some nice moves. Buying at the peak or after a strong percentage jump subjects you to a best case / worst case scenario. The best case will be the sector going nuts and truly getting back to the all time highs. The worst case is the risk off move that I am sure a lot of novice traders just cannot see coming. Here is what you want to look for.

Watch the Conglomerates

The bigger names in this industry will tell the story. We are talking about Canopy Growth Corporation (NYSE: CGC TSE: WEED), Aurora Cannabis (OTC: ACBFF TSE: ACB), Cronos Group (NASDAQ: CRON TSE: MJN) and Aphria Inc. (OTC: APHQF TSE: APH). These names will tell us the story of what to expect. If volume blows out and these stocks move strongly to the upside with risk on all trading day, that will give you a strong indication of what is to come. If we see these stocks reverse and hold lows, it will give us the same guidance. Same if the stocks remain flat. This is where I can see the risk off scenario play out. If stocks remain stagnant, that means we are seeing the vote priced into the stocks. That means the news of the vote has already been anticipated and the current stock price is reflecting the actual voting outcome. That is when we can see the risk off move as buyers bail out of their short term trades. Same for investors alike looking to cash out. I have already seen some risk off in these names this week. In a very short timeframe today, we saw all the big names move lower. Some more than others. If anything, CRON and ACBFF were showing strength by not unraveling and weathering the storm. Disclosure, I have called signals in recent weeks in both of these names and I am currently long.

I can assume most already have these names on their watchlist. Most probably own shares or have owned shares of these companies. However, how many have used these names as a leading indicator? That is what I plan on doing this week. As we move forward, we will see much more divergence from the conglomerates, but for now, you should use these stocks to help guide you on what to do in the near term.

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