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 | | | Relative Trading Volume Shows Cannabis Stocks in a New Light | | Anthony Summers | Senior Research Analyst | The Oxford Club | | | | | Price is everything. At least that's what most investors seem to believe.
Think about it. When most people look at a stock chart, they're usually looking at a stock's price over time... that's it.
This tends to reinforce the notion that price really is all that matters when searching for momentum trends in the stock market.
But it's not.
Yes, price action matters tremendously. But there's another data set that can reveal underlying momentum trends.
I'm talking about trading volume.
Investors who focus exclusively on price action often miss out on what volume activity is telling them. For this reason, we're turning to volume trends in cannabis stocks this week.
Combined with proper price analysis, volume analysis can be a powerful tool in finding which stocks could be on the verge of a breakout.
We want to see momentum in volume that suggests a surge in interest in the stock, just as we look for momentum in a stock's price activity.
Investors often look at moving averages in the price of a stock to see whether price momentum is gaining or waning. The same reasoning applies to a stock's volume.
When there's more or less volume than average, it tells us whether the market has growing or diminishing interest in a stock.
So let's look at the most and least actively traded pot stocks on the market today. | | | 10 Most Actively Traded
Instead of looking at the absolute trading volume in pot stocks, we're going to evaluate the relative trading volume.
In other words, we want to see how current trading volume compares with a stock's moving average volume.
Now, many traders turn to the 50-day or 200-day moving averages in their stock analysis. But personally, I like to look at the 100-day moving average.
It's the perfect balance between a short-term and long-term view.
It covers just over three months of trading and is less stiff than the conventional 200-day moving average. It also gives us a better perspective than the 50-day because it accounts for at least one full fiscal quarter. As you can see, the average pot stock has seen a modest decrease in trading volume of roughly 15% across the board, compared with its 100-day moving average.
But there are some notable exceptions that buck the trend.
At the top of the list is CBD producer Veritas Farms (OTC: VFRM). It saw a major volume spike of more than 130% over its 100-day average, as shares have more than doubled over the past three months.
Cannabis-focused Swiss research and development firm Cannabis Suisse (OTC: CSUI) has seen its volume jump more than 50% compared with its average. And its shares have seen a 55% gain during that time.
One of my favorite cannabis players, Medicine Man Technologies (OTC: MDCL), is also getting a lot of love. Its trading volume is about 25% higher than average, and its shares have surged 65% since late March.
Innovative Industrial Properties (NYSE: IIPR) - the only dividend-paying pot stock on the market right now - has also seen a surge of investor interest in terms of volume.
Other companies like Valens GroWorks (CSE: VGW), EnWave Corp. (CVE: ENW) and Flowr Corp. (CVE: FLWR), which we've covered here in the past, have also seen double-digit bumps in volume, alongside gains in share price.
The only exception is Benchmark Botanics (CSE: BBT), which is down about 2% in three months despite a 24% spike in volume activity.
10 Least Actively Traded
Shifting gears, let's look at pot stocks that have seen a drastic decrease in trading volume.
The 10 pot stocks ranked below have seen volume drop by at least 50% from their 100-day moving averages. So it should come as no surprise that nine out of 10 have also seen their share prices plunge by at least 50% over the past three months.
At the top of this list is cannabis cultivator Westleaf (OTC: WSLFF). Its trading volume is nearly 80% less than its 100-day average, and its shares have collapsed by more than 80%.
Consumer product company Hemp Naturals (OTC: HPMM) is trading 60% less than its average and has seen its shares drop 70% since March.
And the same goes for the rest of the list.
By now I'm sure you're seeing a pattern. As active trading wanes, share prices tend to follow.
In fact, of the 10 stocks on this list, Ignite International Brands (CSE: BILZ) has seen the smallest decline in its share price... but that's not saying much.
The stock is down almost 40% in three months. And its trading volume is about 60% below its average.
Price Isn't Everything
Price analysis can be a powerful gauge of momentum. But it's only one part of a larger picture of market activity.
Volume trends can reveal just as much - and sometimes more - about the overall momentum in a stock, and may reinforce the same story that price trends tell us.
Together, these trends offer a strong case for whether a stock's about to pop... or drop.
So next time you pull up a stock chart, consider giving special attention to the stock's trading volume as well.
Good investing,
Anthony | | | | |  | | | | | | | |  | | | | Rachel Gearhart | June 24, 2019 Should you support a federally illegal industry and unethical companies? Or opt for companies that are more "ethical"? Read More | | | | |  | | | | Anthony Summers | June 22, 2019 One of the simplest ways to profit on the coming 5G revolution is with a thematic ETF. Read More | | | | |  | | | | Matthew Carr | June 20, 2019 How do I buy shares of cannabis companies? For the new or uninitiated, this can be trickier than it might first appear. Read More | | | | | | | | | | |
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