Coronavirus Hits Cannabis Stocks – Buy, Sell or Hold?

This should be a pivotal week for the broader stock market and the cannabis sector.

Global stocks are coming off a tough week – battered by the impact of coronavirus.

The S&P 500 had its worst week since the financial crisis, falling 12% in five days.

This is a 2-year chart on the S&P 500. You can see how steep the drop was.

*Chart from tradingview.com

It’s difficult to predict how coronavirus plays out. But in the past these kind of sharp downturns have usually been a great time to buy. I expect that to happen again.

In the short run I see three events that could trigger a huge reversal.

Fed cuts interest rates: If the Fed or other central banks across the world start dropping interest rates it could be a big trigger for stocks.

Rate of infection slows: Any meaningful slow down in the rate of transmission would be a big boost for stocks.

Vaccine discovered: A vaccine for coronavirus would be great for investor confidence. Israel appears to be leading the charge. A group of Israeli scientists recently said they are a few weeks away from a vaccine.

Israeli scientists claim to be weeks away from coronavirus vaccine

That progress and optimism is great to see – but even if a vaccine is discovered widespread distribution would still be months or years away.

Beyond these potential short-term triggers – no matter how coronavirus plays out I expect stocks to recover. It has always happened. World wars, depressions, recessions, trade wars – stocks have always recovered and I expect this to be the same.

In fact, some of my recent research tells me that the cannabis industry could be recession proof. Take a look below at my report.

Cannabis Stocks Immune to Coronavirus?

In the meantime cannabis stocks have been holding up relatively well.

Canopy Growth Corp (CGC, WEED) fell 14% last week. That’s a pretty sharp fall but considering the S&P 500 was down 12% it doesn’t look terrible. Longer term Canopy shares continue to stabilize. Shares have been trading in a range between $25 and $18 for most of the last six months. Canopy need to break out of this trading range and that would set the stage for the next leg higher. As you can see Canopy’s 5-day price move looks a lot better than the S&P 500.

Chart from tradingview.com

The Big Picture

The broader stock market is struggling with coronavirus and that is weighing on the cannabis sector. Despite the weakness there are still reasons to be optimistic. I see a number of factors that could trigger a quick reversal. I view weakness in the broader stock market and the cannabis sector as an opportunity to buy low and focus on the long-term opportunity.

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