This week's hottest sector might be a warning about the broader market.
[Note: I published this article on my blog yesterday morning (Thursday) about the recent run-ups in marijuana stocks. When their topping has become obvious -- as it will -- I will begin calculating pullback targets for many of the marijuana sector's stocks. Email me at buyhigh@IfThenTiming.com to be on the distribution list for this report.]
Thu Jan 9 2014 -- I've heard (ahem) that marijuana can heighten some people's anxiousness. Marijuana stocks should be affecting you that way right now.
I'm not dismissing their recent performance. In fact, despite my intense hatred for so-called penny stocks, I began buying several over the past two months. And not as flyers. A subscriber asked me to review several that he had uncovered, looking for entry prices and targets.
When this sector started catching fire last week, I began looking out for a day like today. And today has come.
"Today" is the day that the double-digit gainers are becoming more populated with stocks that traded perhaps several hundred shares daily until this week. A couple are doubling or tripling (just checked their quotes, now only doubling again) on nothing more than a press release announcing their entries into the industry.
I'm not dismissing the sector, and will hold my positions and add to them on a pullback (PHOT, EDXC, MCIG -- all of which may currently be sorely in need of corrections). One of my favorite charts was MDBX on a pullback to 12 for a rally to 50 -- it hit 10, surged above 90, and now is testing 50 as support -- but I stayed away because of the founder's questionable history. My point is that the time for a pullback may be arriving now.
And not just in the marijuana sector.
Notice how the broader market began peaking as the marijuana sector began surging. Of course, that coincided with the January 1 legalization date in Colorado. But that date was well-known. The sector's outperformance was as much a warning that the broader market no longer offered so many opportunities.
Now today's "press releases" are inciting doubles and triples, while some of the marijuana sector's early performers are hesitating. Even the sector is rotating out of its own leadership.
I tend to compare the market's uplegs and downlegs to the game of Musical Chairs. The marijuana sector's sudden surging indicated that fewer chairs were available. Now surging on little more than a press release suggests that even fewer chairs remain.
That doesn't mean the music has stopped, but it does mean we should be listening closely.
Disclosure: I am long PHOT, EDXC, MCIG.