Sunday, October 14, 2018

Analysis Of Market Participants Behavior In Tilray Stock After Setting Historical Peak

·Tilray stock rises to sky high level
·Compare to bubble behavior
·High risk high return vehicle for day tradres

On September 19th, Canadian cannabis stock Tilray reached its historical peak and then quickly retraced back. The valuation using conventional metrics is already unbelievably high. But there is still possiblity that it may set new record high again because valuation is no longer a constraint for stock price which, using common sense and basic economic principles, is determined by supply and demand.

Most ordinary investors would stay on the sideline at current stock price. Among them many are waiting to see the stock to collapse but fear of making a trade.Existing stock holder comprises of people who bought at IPO or in the first few weeks after IPO. They already make huge profit and are willing to see the stock go higher. Therefore they are eager to hold the stock even though there is possibility that the stock may collapse in which case their profit shrinks but should still be profitable. They maintain the hope that the stock is unstoppable without fear of loss unless the stock drops more than 80% from current level which seems impossible at this moment. The percentage of this group of stock holder is difficult to determine is guessed not a small portion because it is only a few weeks since the stock began to rise at an incredible rate..The remaining stock holders are mostly day traders. They are highly speculative whether the stock rises or falls. But it appears that there are more traders looking for the stock to advance higher. Thus the stock can be buoyed at a level that seems too expensive for ordinary investors. The future movement of the stock depends on how existing market participants would trade their holdings.

When a stock rises continually for extended period of time, it creates lots of opportunities for making profit. Since there are much more investors who make a profit than those suffer a loss, market sentiment becomes optimistic and drives the stock higher. This is a regenerative loop until at an inflexion point market sentiment changes, probably of valuation concern which has been ignored during the rising tide. After the retrace, the sentiment of market participants changes. Unlike before the peak when most market participants make profit, after the peak the number of market participants suffering a loss increases significantly and the force to dtrive the stock becomes much weaker.

The following graph shows the Tilray stock chart on the five days around the peak on September 19th.