VFF Shows Strength as Pullback May Be Ending

 Over the weekend I posted about why I believe this pullback in VFF was a buying opportunity, and today we finally saw some evidence that the pullback may be coming to an end. Above is a daily chart of VFF, and the first thing that jumps out at me is the bullish engulfing pattern that formed today. After a period of consolidation and selling pressure, seeing a strong engulfing candle like this is exactly the kind of price action I want to see if a stock is trying to put in a low.

Volume was slightly elevated, which is encouraging, but what really has my attention is the relative strength. Today was a weak day across the board. The overall market struggled, and cannabis stocks in particular were under pressure. Despite that, VFF managed to close up more than 4%, making it the strongest cannabis stock on the day. That type of outperformance on a down market day is a big tell for me. It suggests that buyers are stepping in with conviction while money is rotating out of weaker names.

I also talked about confirmation over the weekend. For me, confirmation of a potential low would come if VFF could take out last week’s high at 3.65. Today’s high was 3.65, so we’re right at that level. That tells me the stock is pressing up against resistance, and now it’s a matter of whether it can push through it. A clean move over 3.65 would go a long way toward confirming that the pullback is over and that the uptrend is ready to resume.

Another important piece of the puzzle is the ratio line in the lower pane. Notice how it has turned up and broken its downtrend. Relative strength turning higher often leads price, and seeing that shift now adds confidence to my thesis that this was simply a normal pause within a strong uptrend.

I’m already long this stock since last summer but I will be looking to add some more shares on a decisive move over 3.65. If you want more detail on why I was expecting a turn, you can read my weekend post titled VFF Pullback Looks Like a Normal Pause in a Strong Uptrend, where I laid out the full setup.

Nasdaq Weakness Confirms: Pullback Begins

 

Over the past week I’ve been warning about the relative weakness I was starting to see in the Nasdaq, and today we finally saw that weakness begin to play out. Above is a daily chart of QQQ, with SPY in the lower pane for comparison, and the divergence really couldn’t be clearer to me. Last week SPY pushed to a fresh high, showing continued strength in the broader market. QQQ, on the other hand, failed to confirm that move. It did not make a new high, and that non-confirmation was the first real warning sign that something was off beneath the surface.

Whenever I see one major index making new highs while another lags behind, I start paying very close attention. Markets don’t usually top all at once, and leadership often starts to narrow before we see a pullback. That’s exactly what I felt was happening here. I mentioned last week that as long as minor support held, the market could continue chopping higher. But I also said that once that support was taken out, it would act as a trigger for a potential downside move.

That trigger came today. QQQ broke below last week’s low at 614.56, and to me that’s a meaningful technical development. This break confirms the relative weakness that was already showing up on the chart. In my opinion, this move marks the beginning of a pullback in the market. I’m not looking for a crash, and I’m not pounding the table on a major bear market. What I do see is an overdue reset after an extended run higher.

What’s important now is where the relative strength is showing up. While QQQ is breaking support, IWM has continued to act much better. Small caps have been holding up and, in some cases, pushing higher while the Nasdaq rolls over. That’s the index I want to focus on going forward. If the market is going to pull back, I want to be aligned with the areas that are still showing strength.

For anyone who wants more background, you can read my original post from last week titled: Relative Weakness in QQQ Signals Caution, Not Panic where I first outlined these concerns.

TSLA Back at Key 20-Week Support With an Inside Week

Above is a weekly chart of TSLA with its 20-week simple moving average plotted. This is one of the first things I look at when I’m trying to determine whether a stock is in a healthy intermediate-term trend, and TSLA has respected this level extremely well. Since last summer, this moving average has acted as reliable support on multiple occasions. In fact, it’s been tested six separate times, and each time price found support and moved higher. That kind of repeated behavior tells me this is a level institutions are clearly watching.

Right now, TSLA is once again testing that same 20-week moving average. What makes the current setup particularly interesting is that we’ve just printed an inside week. When I see an inside week form directly on a key moving average, it immediately gets my attention. Inside weeks often represent consolidation and indecision, and when they occur at an important support level, they can act as a springboard for the next directional move.

This is not a spot where I want to anticipate or guess. I want price to confirm. For me, a long entry would require a move above the high of the “mother candle,” which is 457.55. A break above that level would tell me buyers are regaining control and that the 20-week moving average has once again done its job. Until that happens, patience is required.

As I write this on Monday night, TSLA is trading lower along with the broader market, around the 431 area. That doesn’t bother me in and of itself. What matters is whether this moving average continues to hold on a closing basis and whether we start to see price curl back up. If that happens, this consolidation could resolve to the upside, just like it has several times over the past year.

I’m not married to any outcome here. If support fails, I’ll step aside. But if the 20-week moving average holds and TSLA starts pushing higher, this is a setup I’ll be watching very closely for a potential long entry.

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VFF Pullback Looks Like a Normal Pause in a Strong Uptrend

 Above is a weekly chart of VFF, and in the lower pane you’ll see a ratio line of VFF versus MSOS. When I’m analyzing pullbacks, I always like to study the character of prior pullbacks within the same trend. Markets tend to repeat behaviors, and understanding that rhythm can help frame expectations for when a pullback may be nearing its end.

Since the April 2025 low, where VFF clearly bottomed, we’ve seen three meaningful pullbacks. One of them was very short-lived, lasting only a single week. The other two however lasted exactly four weeks before the stock resumed its uptrend. That’s important, because that is precisely what we are seeing now. VFF made a high and then sold off for four consecutive weeks, mirroring the structure of those prior corrections almost perfectly. In strong trends, pullbacks often come in measured, controlled waves rather than sharp, chaotic selloffs.

What I really like about this current pullback is how clean it looks. The stock has been forming consecutive lower highs, which tells me this is orderly profit-taking rather than aggressive distribution. There’s no panic here, just digestion of the prior move. This is typically what you want to see if a stock is going to push higher again.

Looking at the ratio line in the lower pane adds another layer of confidence. VFF has been in a clear uptrend relative to MSOS since October of 2024. That tells me VFF has been outperforming the broader cannabis space for several months now. Relative strength like that usually doesn’t disappear overnight, especially when price action remains constructive.

From a seasonal perspective, cannabis stocks also tend to perform well during January and February, so we still have that tailwind in play. On top of that, Pam Bondi finalizing rescheduling remains a potential catalyst that could inject fresh momentum into the group.

I’ve been long VFF since last summer and I’m not looking to sell into this pullback. Instead, my plan is to add above last week’s high at 3.65, which would signal a potential resumption of the uptrend. That’s how I’m viewing this setup. What do you guys think?

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Mortgage REITs Are Finally Showing Signs of a Trend Change

 

You don’t hear much talk about mortgage REITs these days, and for good reason, they’ve been dead money for a long time. But that’s exactly why I’m starting to pay attention now. When an area of the market has been ignored for years and then begins to show signs of life, I want to know about it. Above is a weekly chart of REM, and in the lower pane is a ratio line of REM versus SPY. That ratio line tells the real story.

For many years, REM has been in a clear downtrend relative to the S&P 500. Owning mortgage REITs simply didn’t make sense when compared to owning the broader market. Capital consistently flowed elsewhere. But look at what’s happening now. For the first time in roughly five years, the REM/SPY ratio is breaking its downtrend line. That’s a big deal. Relative strength trends don’t change often, and when they do, it usually signals an important shift under the surface.

What makes this even more interesting is that price is now confirming what the ratio line has been hinting at. If you look at the price chart of REM, you’ll see it is just now breaking through a key resistance level. I always want to see price confirm relative strength, and that’s exactly what we’re getting here. This combination of relative strength improving and price breaking out is often how new leadership begins.

When I drill down into the individual names, the picture gets even better. Stocks like NLY, TWO, and AGNC have all been acting very well since January 1st. They’ve been making higher lows, holding gains, and responding positively to buying pressure. That tells me money is clearly moving into this space. Institutions don’t tiptoe in quietly by accident.

I’m not chasing these stocks here after the initial move. My plan is simple: I want to be a buyer on a pullback. If this really is a change in trend, there should be opportunities to enter on weakness. Mortgage REITs may not be exciting, but the chart is starting to say something important and I’m listening.

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