A Technical Breakout For Cannabis

Recently, the cannabis sector has shown signs of increased volume, volatility, and a reasonably strong potential for a price base. Volume started increasing near mid-September as the price of the ETFMG Alternative Harvest ETF (MJ) fell below $15. This support level originated from late December 2020 after a significant rally trend from recent lows near $10 — when the Reddit retail trader event started to unfold.

What I find interesting are two things. First, the recently proposed cannabis reform legislation may prompt a nationwide declassification of marijuana as a class-3 drug. This change could open every state, consumer, industry, and banking/financial institution to kick the doors wide to participate in the cannabis industry.

Secondly, this industry is well past the initial stages of growth and attrition from many years ago. Now, established players and proven markets are competing for market share. This creates a very competitive and dynamic environment in this sector.

What I believe can happen over the next 10+ years is a simple consolidation of the industry around centralized components of the cannabis market. And a renewed focus on federal approval and tracking related to “seed to consumer” regulations.

My opinion is that the industry will see weaker players acquired by stronger players while startups still try to dominate the fringe market. These startups will likely be disruptors in the industry, just like independent brewers are popping up all over the US right now.

Technically, I see a very large 'Pennant/Flag' formation on the cannabis MJ chart. The formation leads me to believe early January could prompt a base or bottom near $13.25. I see the long-term support level, originating from the bottom in March 2020, as a very critical price level.

This support level will likely prompt the current price to try and hold above $12.75~$13.00 as the final waves of the Pennant/Flag trend unfold. If my wave count is correct, the price will attempt to bottom near $12.75~$13.00 soon. After this, the cannabis MJ price may try to rally up to $15.25 to $15.75 before the end of 2021.

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