Investing

A Trend-Based Approach to Trading Cannabis IPOs

By Adam O'Dell  |  September 2, 2019

The cannabis industry will very likely deliver the highest growth rates of any industry group over the next five years.

But nothing moves in a straight line.

Pot stocks got off to a great start in 2019, spurred by encouraging developments on the legalization front, and with a little help from the early-year rally in the broader stock market, off the “oversold” late-December lows.

Have a look at this chart of one of the most popular cannabis-stock ETFs available today, the ETFMG Alternative Harvest ETF (NYSE: MJ), which rallied 64% between late December and late March…

But then some setbacks and hesitations put a damper on that rally, ultimately sending this pot-stock fund 37% lower and back to its late-December support level.

For already-in-position cannabis investors, this pullback has been a source of pain. We’re “taking heat,” as we say, on long positions.

But for folks who are still considering how, or when, to get some exposure to this high-growth industry… for folks who may have thought they’d already “missed the train,” after seeing the December-to-March rally… now is your chance to get in!

I use a trend-and-momentum approach in my Cannabis Paydays service, but I recently read an interesting piece of analysis by a “fundamental” analyst who said the recent pullback is now making cannabis stocks look attractive to value investors.

My friends, if cannabis stocks are indeed now in a position where they’re attracting attention from both value and growth investors, the industry’s next massive rally could be just around the corner.

Greenlane Holdings

Remember though, I’ve shared before how I designed Cannabis Paydays to identify the best cannabis stock opportunities based on price action, more so than any company’s fundamentals, “story,” or promises.

A couple months ago I told you the story of Greenlane Holdings (Nasdaq: GNLN)…

Greenlane Holdings made its initial public offering (IPO) on the Nasdaq on April 18, just before cannabis enthusiasts’ annual “420” day.

That was quite apropos, of course, as Greenlane is a leading supplier of “headshop” accessories — ranging from glass water bongs and “herb” grinders, to high-tech vaporizers (for both nicotine and, well, whatever leafy green material you’d like).

I think Greenlane is a solid company that will prove to be a lucrative “picks-and-shovels” play on the cannabis industry. It’s firmly on my radar.

But I won’t recommend buying shares of Greenlane’s stock because it doesn’t yet meet the criteria of my trend-and-momentum strategy. The stock’s price action has just been too weak!

Shares of GNLN opened on April 18 at $29. Then they immediately fell to a low close of $13.34 on May 2 — a 54% drop in just 10 days!

If you read an earlier Rich Investor piece, “How to Avoid an IPO Landmine,” you know that a waiting period and trend rule can work wonders toward helping you sidestep the initial carnage that many IPO stocks suffer through. It’s important to keep cool, calm, and collected while everyone else is caught up in the frenzy.

That’s certainly been the case with Greenlane’s stock. It’s proven to be a “falling knife” so far. And I won’t be recommending it until it’s already trending higher to a significant degree.

Now, I realize that feels counter intuitive. We’re taught to “buy low and sell high.” So, buying something after it’s already moved significantly higher can feel foolish.

But would you believe it if I told you that you can wait for Greenlane’s stock to double in price, and then still buy it at a discount to its IPO?

Let me show you what I mean…

Buying After a Double

Here’s a chart of Greenlane (Nasdaq: GNLN):

The blue line at $29 shows you what you would have paid for GNLN when it opened on April 18.

The red dotted line at $6.39 tracks the stock’s lowest close.

And finally, the green dotted line at $12.78 shows where the stock will be trading after it increases 100% (doubles) from its lowest close.

Think about that…

By choosing not to purchase this IPO on Day 1, you first avoided a 78% drop.

And then, even if you decided to wait until Greenlane proved capable of doubling its share price — a sign of strength, and no small feat — you still could buy into the stock at a discount to its IPO price!

That’s incredible, don’t you think?

The Best Indicator I’ve Ever Found

I’ve been trading and developing systems for a long time. I’ve researched and tested hundreds of indicators, looking for the best way to separate stocks into “buy,” “sell” and “avoid” buckets.

And while it’s deceptively simple (and thus overlooked by many), a stock’s trend is generally the best indicator of its strength.

When a stock is already trending higher, your odds of success are higher, and your risk is lower.

When a stock is falling, your odds of success are lower, and your risk is higher.

It’s as simple as that!

And that’s why a trend rule is a “must” for me.

I’ve incorporated trend rules into all my systems — including the ones I use in my Cycle 9 Alert, 10X Profits, and 7-Figure Trader services.

And I’m also incorporating this timeless “trend-following” principle into my approach to identifying the cannabis industry’s hottest opportunities. And Greenlane’s IPO is the perfect example of why that’s so.

The cannabis industry is full of hype. And dozens of new cannabis companies will IPO in the coming months and years.

Greenlane is among the first of many to come — and as I said, I expect it to be a great “picks-and-shovels” play. But I won’t be recommending it until the stock first establishes a significant uptrend.

That’s when we’ll know it’s safe to buy in.

Before I got, I wanted to let you know that today’s the last day we’re offering access to Cannabis Paydays at a special price. Our model portfolio currently holds 11 positions, all of which are still “buys,” including our one top-performer… a picks-and-shovels play that’s up around 50% and still hitting new highs.

Click here to get in on the action now.

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Adam O'Dell

As Chief Investment Strategist for Dent Research, Adam O’Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with minimum risk. He achieves this with his perfect blend of technical and fundamental analysis.

Tactically, he does extensive back-testing and probability-based research. It’s the ultimate partner to the exhaustive research that Dent Research co-founders Harry Dent and Rodney Johnson do in the exciting realm of the new science of investing.

Adam is also the executive editor of our hugely successful trading services, Seven-Figure Trader, Cycle 9 Alert and 10X Profits.

He has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high-profit potential.

Aiming to find the best opportunities across all asset classes, Adam expanded into the commodities, equities and futures markets. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. MORE FROM AUTHOR