FXCM Cannabis Basket Showing Signs of Bottoming

  • CANNABIS
    (${instrument.percentChange}%)

Move to Decriminalise Marijuana

Cannabis stock prices are reacting in response to a significant development: the U.S. Food and Drug Administration (FDA) and its overseeing body, the Health and Human Services (HHS), proposed a "reclassification" within the framework of the Controlled Substances Act of 1971.

The HHS's recommendation to classify cannabis as Schedule III is a strong indicator of the seriousness with which President Joe Biden's administration is pursuing further cannabis law reform. This will likely accelerate advancements in other positive reforms, particularly at the state level.

This is being reflected in the technicals of FXCM's Cannabis Stock Basket.

Waning Downtrend


Chart 1

The FXCM Cannabis Stock Basket has been moving in a downtrend almost since inception. However, the downside momentum seems to be slowing. This is evident by the shift in trendline gradient from the green trendline to the shallower sloped orange trendline. In fact, the basket has positively broken above the orange trendline (black ellipse) in a recent show of strength.

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Improving Relative Strength


Chart 2
Source: www.tradingview.com

Chart 2 shows the relative strength (rs) between the FXCM Cannabis Stock Basket (numerator) and the SPX500 (denominator). For the most part, the rs moves in a south easterly direction i.e., the basket is underperforming the SPX500. The two blue dashed vertical show brief periods when the basket attempted to rally against the SPX500, but ultimately failed.

However, currently, the rs chart's green 5-week EMA has crossed above its orange 10-week EMA (red circle) and its RSI has popped above 50 (blue rectangle), suggesting that the underlying momentum has shifted to a more positive position. If the EMAs develop angle and separation to the upside, and the RSI can maintain above 50, the rs will have shifted in favour of the cannabis stock basket.

Cannabis Basket Showing Signs of Markup


Chart 3

The FXCM Cannabis Basket has generally been below its black 30-week EMA. This suggests a markdown phase for the basket. For a brief period, at the end of 2022, the basket attempted to move above the 30-week EMA, with the RSI popping above 50 (blue rectangles). However, this proved short-lived.

The basket is now showing potential markup signs. It has moved above its 30-week EMA and its RSI has popped above 50 (green rectangles). Importantly, the black 30-week EMA has turned up in cooperation. The longer the indicators maintain their respective positions, the greater the likelihood of further price appreciation ahead.

Image by 7raysmarketing from Pixabay

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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