Buy the Rumor, Sell the Leak: How Cannabis Stocks Collapsed Before the Signing

 

Today was a perfect case study in how markets trade expectations, not outcomes, especially in cannabis.

Coming into the session, cannabis stocks were bid on anticipation. The story had been well telegraphed. President Trump was expected to sign an executive order directing the attorney general to expedite and complete the rescheduling of marijuana from Schedule I to Schedule III. That alone would be meaningful opening the door to more medical research and critically allowing cannabis companies to take normal tax deductions by removing the crushing 280E burden. Add in headlines about a lifeline to the hemp industry, Medicare-eligible CBD under doctor recommendation, and expanded research, and you could feel the optimism building.

Then the leak hit.

Before the signing even happened, details of the executive order leaked out, and the market’s reaction was swift and brutal. MSOS, the cannabis ETF that has become the proxy for the entire sector, rolled over hard and collapsed. It wasn’t that the news was bad. In fact, much of it was constructive. But it wasn’t new enough, big enough, or clean enough to justify the run-up that preceded it.

That’s the part traders struggle with. By the time something is “confirmed,” the trade is often already crowded. When the details came out no immediate legalization, no explicit cannabis banking reform, no clemency language mentioned, the air came out of the balloon. “Expedite” and “complete” the rescheduling process sounds good politically, but markets wanted certainty and timelines, not process language.

The White House briefing emphasized “common sense” reform, focused on increasing medical research for marijuana and CBD, informing doctors and patients, and removing barriers that exist because cannabis is still technically Schedule I. It also outlined efforts to expand access to full-spectrum CBD, potentially through Medicare models administered by CMS, and urged Congress to revisit the definition of hemp. All positive but incremental.

And incremental doesn’t excite traders who were positioned for a catalyst.

So the sector sold off, hard. This wasn’t a judgment on the long-term value of rescheduling; it was a reset of expectations. The leak turned a “buy the rumor” setup into a classic “sell the news” event before the news even officially hit.

Looking at the chart above on the left, we see the daily chart of MSOS, and it’s hard to ignore today's multi-day engulfing pattern that has formed.

On the right is a 5-minute chart of MSOS with SPY plotted in the lower pane for comparison. This is where the real tell showed up. Early in the morning, the broader market pushed to a new high, but MSOS didn’t confirm it. While SPY was pressing higher, MSOS lagged and failed to make a new high of its own. That non-confirmation immediately stood out to me as potentially bearish.  I even mentioned this on social media that "something doesn't seem right". MSOS  didn’t feel strong "it felt heavy".

And yet, I ignored it.

Instead of respecting what price and relative strength were telling me, I anchored on the 1:30 announcement that was coming later in the day. I convinced myself the catalyst would override the warning signs on the chart. That was a mistake. When the move finally came, it wasn’t in my favor. In a matter of minutes, I gave back substantial profits that had taken much longer to build.

It was a painful reminder that charts lead, headlines follow and when the market is talking, I need to listen..