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The market has been weak for the previous few weeks, however there may be at all times a silver lining. It’s simpler to identify relative energy in a particular inventory or sector when the market is weak, than when the market is sturdy.
One sector that caught my eye is the hashish sector.
There was a catalyst in late August, when the Division of Well being and Human Companies requested the Drug Enforcement Company to think about reclassifying cannabis.
The catalyst led to sustained file excessive buying and selling volumes within the Pure US Hashish ETF (NYSEARCA:MSOS) for 2 weeks working, and there’s a sturdy chance that institutional cash is flowing into the sector. This worth response is a big character change within the sector ETF. With the ETF buying and selling near -85% under all-time highs, the risk-reward is engaging to be lengthy MSOS.
Hashish is at the moment listed alongside Heroin and LSD as Schedule I medication, and a reclassification decrease would doubtlessly present many advantages for the hashish sector, together with tax advantages, interstate commerce, and analysis alternatives.
Extra essential than the catalyst itself is the worth response to the catalyst. If we get a robust, constructive response from the market, this tells us that the market is shopping for into this information.
And that’s precisely what we bought.
The MSOS ETF is the hashish ETF with the best AUM at $620m. Its common each day quantity is the best within the house at 4.5m shares traded per day, or about $40m in each day greenback traded quantity at present costs.
ETFdb
The ETF is an actively-managed US-listed ETF with devoted hashish publicity, and goals to spend money on US hashish corporations. Many of those corporations are primarily listed in Canada, which can solely be out there to some traders through the US OTC market (like myself). As such, this ETF supplies accessible publicity to those shares.
AdvisorShares
Diving into the technical charts, we might even see from the weekly chart under that the ETF noticed file volumes for the weeks of 28 Aug and 5 Sep.
Weekly Chart: MSOS
Tradingview
It is a sturdy sign that the market believes one thing has considerably modified within the sector. The hashish sector had beforehand seen many cases the place shares bounce on optimism that there could possibly be additional legalisation of the drug, earlier than seeing these good points worn out when there isn’t any finish product.
Is that this time totally different? Solely time will inform, however the method wherein the quantity is coming in sharply, at greater than twice the earlier weekly file excessive quantity in Dec 2022, tells me the character of the sector has modified.
This excessive quantity has to this point been sustained for 2 weeks, and a giant clue on whether or not institutional cash is coming in could be whether or not the quantity stays elevated on up-weeks, and whether or not the quantity stays low on down-weeks. This may point out that there’s not a lot provide available in the market, and consumers aren’t promoting their shares.
That is additionally the primary time MSOS is buying and selling above its 10 and 20 week shifting averages since Mar 2021, which is one other inexperienced flag.
The danger is after all, that hashish fails to get reclassified. Nonetheless, because the saying goes “Purchase the hearsay, promote the information”. This “hearsay” is attracting large inflows. Moreover, shares thrive on momentum and a “thematic story”. In the identical vein, many AI shares aren’t worthwhile however have put in large returns this yr.
From right here, I believe MSOS is prolonged within the close to time period after rising +75% in 9 periods. A greater alternative could be to attend for its first pullback to the shifting averages. I wish to watch for the ten and 20 day shifting averages to catch up, and for there to be some consolidation at these averages, earlier than I purchase in.
Each day Chart: MSOS
Tradingview
To sum up, MSOS has seen file volumes lately on account of a possible reclassification of hashish. The excessive volumes, coupled with the truth that worth is now above key shifting averages, tells me that is possible a personality change within the sector. There’s a sturdy chance of institutional cash getting into the sector.
MSOS is near-term prolonged after its large run up, and I would favor to attend for its first pullback, and watch for the way worth reacts close to its 10 and 20 day shifting averages. If volumes stay low on down-days, it tells me provide is drying up, which is constructive for the sector.
MSOS ETF is down near -85% from its all-time highs again in 2021, so there may be loads of room for this ETF to run. Moreover, the truth that it’s buying and selling above key shifting averages on each the each day and weekly charts means there may be little overhead resistance.
