There could be a $3 rally brewing in Aurora Cannabis (NYSE:ACB) soon. The setup for this is almost perfect but it will take intestinal fortitude to hold ACB stock during this uncertainty on Wall Street.
This morning we are seeing video of skirmishes in Hong Kong that could make the problems with China more acute. So the short term prognosis for stocks is guarded. Long term however, the thesis remains bullish behind central banks still geared for growth.
The thesis for pot stocks has not changed much. So what captured everyone's imagination last year when they were rallying to the moon is still there. But with the advent of other distractions like IPOs, the novelty of cannabis stocks waned including ACB stock.
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The perception is that Canopy Growth (NYSE:CGC) is the cream of the crop but Aurora stock price has performed better so far and for a while. So I see no particular reason why I should not bet on ACB here.
Why Aurora Cannabis Stock Looks Good
The opportunity here is a blend of technicals with fundamental backing. The charts reveal clues about what the investors plan to do with Aurora cannabis stock. Besides, the Tilray (NASDAQ:TLRY) earnings report this week should also create fireworks in Aurora stock.
Late in 2017, ACB stock stepped up its game. It went from trading below $5 to a giant spike that took it to the all-time highs of $12 per share. Since then, it has made two complete round trips from highs to the $5 zone.
But in March of this year, ACB stock topped out at $10 per share. This was a long-term lower-high trend but one that also has a well-defined bottom range above $5 per share.
Below $6 per share, Aurora seems to find footing. This is where the bulls like to remount their buying efforts. So if we assume now that the stock markets in general are not collapsing, then it is safe to also assume that ACB stock buyers will make another effort to push prices towards the highs once more.
There will be strong resistance at $7, $8 and $9 per share. These are zones, so think of them as rubber bands and not hard lines in the sand. The most significant level is $9, because it happens to be the point-of-control for over a year. This is where bulls and bears most agree on price based on the volume profile of ACB chart.
This is an opportunity that is a speculative short-term bet on Aurora Cannabis. But if someone is looking to get into the pot stock investment for the longer-term, this can also double as a good starting point for that.
Looking at Marijuana Stocks
The bloom is off the rose for marijuana stocks, so to speak, this year. But that doesn't mean that the thesis for the stocks is dead. In fact nothing has changed from that perspective except the eagerness of Wall Street to buy stocks like Aurora Cannabis, CGC, Cronos (NYSE:CRON) and Tilray.
Fundamentally, ACB stock, just like all of its competitors, is way too expensive from the traditional valuation perspective. But the story here is anything but traditional. These are intrepid companies trying to establish an industry that has not yet existed legally. So the road is tough and the investors must have a high tolerance for risk.
Luckily the price tag for Aurora Cannabis offers a relatively low-dollar-risk attempt at profiting from the pot industry. The U.S. has yet to legalize the substance on the federal level. And when that happens it will be a game-changer for the stock prices.
While the mania for the ACB stock price is gone, the fans of the story are still passionate. This makes for easier entry points, since the craziness of the bids has definitely subsided. We are far removed from the day when TLRY spiked to $300 per share on a massive short squeeze.
So the buyers now have more conviction than they did just a few months ago, thereby making the investors now stronger hands holding ACB stock. At $6 per share, the long-term upside potential from here seems bigger than the downside danger.
It is also important to note that we still have a ton of geopolitical risks - most recently, the unrest in Hong Kong. And that's without mentioning the economic war between the U.S. and China.
So buying any stock right now is risky enough, let alone a speculative one like Aurora Cannabis. So I don't enter full positions all at once so I would have room to manage my risk and add to it in the future.
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