To say that the Tilray (NASDAQ:TLRY) stock came out of the gate strong is the understatement of the decade. The stock got caught in a whirlwind trade that made instant millionaires but left many broken accounts. The rise was so fast that the shorts were decimated. Then the fall was equally impressive and surely caught late-comers stuck long.
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Since then, the mania has abated but it still is an exciting stock to watch. It is now more than 70% off its highs on Sept. 19, 2018, but it still carries the aura of last year. Critics would argue that fundamentally, Tilray stock is grossly overvalued from a traditional standpoint. It has a market cap of $7 billion with only $20 million in revenues.
But this is not a traditional stock. While I am not here to judge it for value, the bullish thesis here resembles that of Tesla a few years ago. Bulls have an array of reasons why TLRY has tremendous potential down the road. The cannabis stocks are levitating here for a whole host of reasons. Some see medicinal applications, while others expect mainstream companies like Coke (NYSE:KO) or Pepsi (NASDAQ:PEP) to promote the recreational cannabis-infused drinks. There is also the edible area which is already in full bloom.
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I am not here to judge what’s right or wrong from the ethical aspect. Nor am I here to judge the thesis. I can clearly see that the thesis is popular to the point that it is almost impossible to kill it here. As long as this is true, there will be a bid under cannabis stocks like TLRY.
For those who believe strongly in the sector, they should just buy and hold the stocks for the long term. Personally, for that plan I’d prefer Canopy Growth (NASDAQ:CGC). This way I can piggy back off the homework of Constellation (NYSE:STZ) and their $4 billion investment in CGC.
For the traders among us, we can refer to price to learn the truth. The charts give us all the information that we need to find trigger levels up or down, then set a clear plan of action.
My observation is that TLRY stock is too quiet here. For momentum stocks like this, this only means that a move is coming and direction is unknown. More to that point, the range of prices tightened severely in February. The last time we had a similar situation was on Jan. 7. What ensued was a giant 30% rally.
While this is not a guarantee that history will repeat itself, the price action is similar. The range tightened between Dec. 20 and Jan. 7 and then the stock blow up. It is definitely worth an attempt at a trade.
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The upside triggers are $78.30, $79.54 and $88.70. Each should
bring some resistance, but then if the bulls break through them
they invite more buyers to join. Now we have a higher low and lower
high trading sequence coming into a point. This won’t last, so
traders must be fast.
I don’t normally condone jumping the gun, but Tilray stock might be hard to grab it if it starts moving. I am also not reckless, so it is probably a good idea to use options to get in for little money. I’d use March contracts or longer for this.
TLRY is probably reporting earnings soon, and that is definitely an unpredictable short-term catalyst. First, we don’t know what they will deliver. And second, we don’t know how markets will react to the report. This is more reason to use smaller out-of-pocket expense in options.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
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