CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
✖

Can Cannabis Cure COVID

Article By: ,  Head of Market Research
May 26, 2020 2:10 PM

To answer the question asked in the title up front: Probably not.

But that hasn’t stopped traders from bidding up the stocks of beaten-down marijuana companies following a Canadian study from the University of Lethbridge that showed high levels of CBD, a non-psychoactive compound in marijuana plants, could reduce COVID-19 infections by “up to 70 to 80 percent” by blocking ACE2 pathways that the virus uses to enter the body. The study suggested that eventually, cannabis could be used to “develop easy-to-use preventative treatments in the form of mouthwash and throat gargle products [with the] potential to decrease viral entry” through the mouth.

Beyond sounding like a theory your college roommate would come up with at 2am, it’s worth noting that the study has not been peer reviewed and even the original authors indicated that substantially more research is needed. Nonetheless, the once-hot marijuana sector has been beaten to a pulp, so any hint of good news is enough for bullish traders to hop on board and bears to cover their short positions. The widely-watched “Alternative Harvest” ETF (MJ) was down fully -80% from its Q4 2018 peak to the mid-March low before recovering over 60% off the lows as of writing:

Source: TradingView, GAIN Capital

As the chart above shows, the industry ETF just saw its short-term 21-day EMA cross above its medium-term 50-day EMA, signaling a possible shift to a bullish short-term trend for the first time since January 2019.

In terms of specific names to watch, the ETF’s top holdings include GW Pharmaceuticals (GWPH), Cronos Group (CRON), Canopy Growth Corporation (WEED) and Aurora Cannabis (ACB). Turning our attention to those charts, our favorite potential bullish setup of the bunch may be GWPH, which trades at “only” 10x sales and has already recovered to trade back at 6-month highs, forming a near-term trend of higher highs and higher lows in the process:

Source: TradingView, GAIN Capital

Needless to say, this entire group of small-capitalization stocks in a nascent industry will remain highly volatile in the weeks and months to come, regardless of the situation with the global pandemic. That said, a return of the speculative interest in such potentially high-growth names could be a sign of “animal spirits” returning and present compelling trade opportunities in the coming days.


StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024