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..

When Relative Weakness Leads the Way in NVDA

 

Above is a daily chart of NVDA, and in the lower pane I’ve plotted a ratio line of NVDA versus the SPY. This is one of my favorite ways to strip away the noise and see what a stock is really doing relative to the broader market. When that ratio line starts to lead, I pay very close attention.

Today NVDA broke a minor support level, and that alone is worth noting. But what really caught my eye is what’s happening beneath the surface. The ratio line has already broken down to a new low, well ahead of any dramatic move in price. That tells me NVDA is not just pulling back with the market, it’s underperforming it. This kind of relative weakness often shows up before price makes a more meaningful move lower.

From a trading perspective, aggressive traders had an opportunity today. When that minor support gave way, a partial short on the break made sense, especially with the ratio line already confirming weakness. When price and relative strength align like that, I’m much more confident in the trade thesis.

Looking ahead, the level I’m focused on now is 169.55. This is a more significant support area, and it’s where things could really get interesting. If NVDA breaks below that level, especially if the ratio line continues to make new lows, it could open the door to further downside over the coming days. That’s the spot where I’m watching for a potential add or a fresh entry.

The key takeaway for me is simple,  price tells you what is happening, but relative strength often tells you what’s about to happen. Right now, the ratio line is flashing a clear warning that NVDA is weaker than it appears on price alone.

Relative Strength Led the Way: TSLA’s Breakout to New All-Time Highs

 

Today was a big day for TSLA as it pushed to new all-time highs, and the rally didn’t come out of nowhere. The strength we saw into the breakout was being telegraphed ahead of time through relative strength, and that’s what I want to walk through here.

Above is a 15-minute chart of TSLA, with SPY in the lower pane for comparison. For the past 8 days TSLA and SPY were moving in lockstep. The highs and lows were closely correlated, which is what you would normally expect when a stock is simply following the broader market. Nothing about that action stood out as unusual or noteworthy.

That changed at point A. While SPY was making a new swing low, TSLA did not fully confirm that weakness. The divergence wasn’t dramatic, but it was enough to get my attention. Instead of accelerating lower with the market, TSLA began to show subtle signs of buying pressure. These early divergences are easy to dismiss because they don’t look impressive on their own, but they often serve as the first clue that something is shifting beneath the surface.

By the time we reached point B, the relative strength became much more obvious. SPY continued to trend lower, pressing to fresh lows, while TSLA carved out a clear higher low. This is the type of behavior I’m always watching for. When a stock refuses to follow the market lower and instead begins to stabilize and turn up, it tells me that institutions may already be positioning.

Once resistance was broken at 482, the message was clear. TSLA broke out and rallied strongly into the close, confirming what the relative strength had been hinting at earlier in the day. From that point forward, momentum stayed firmly to the upside.

Looking ahead, I’d like to see a pullback toward the 482 level for a potential buying opportunity. Former resistance often becomes support, and if TSLA can hold that area, it would further validate the strength we’re seeing. We’ll see how things unfold, but for now, I really like the character of this move.

Going Up While the Market Goes Down: A Perfect Relative Strength Breakout in MSOS

 

What a great day for MSOS, which pushed to a new high for the year and gave us a textbook example of how powerful relative strength can be when it shows up at the right time. Days like this are exactly why I spend so much time watching how a stock or ETF behaves relative to the broader market, not just in isolation.

Above is a 5-minute chart of MSOS, and in the lower pane I have SPY for comparison. For most of the morning and well into the lunch hour, SPY was trending lower. Sellers were in control, and the general tone of the market was weak. Under normal circumstances, you would expect most ETFs to follow along. MSOS had other plans.

Instead of breaking down with the market, MSOS was quietly making higher lows. That divergence immediately caught my attention. While the market was leaking lower, buyers were consistently stepping in earlier on each pullback in MSOS. That’s a subtle but important clue that demand is overwhelming supply, even in a bearish market environment.

The setup became even more compelling when MSOS pushed up to 6.09, which also happened to be yesterday’s high. Now we had a clear reference level. Prior highs often act as resistance, and when price can lean on that level without backing off, it tells me pressure is building. MSOS spent time consolidating just beneath that level while SPY continued to struggle.

Right around 1:00, the divergence really paid off. SPY made another push to a new low, but MSOS did the exact opposite. It pushed to a new high, breaking out of the consolidation and clearing that prior resistance. That’s the moment I want to be involved,

From there, MSOS went on to rally beautifully into the close, rewarding anyone who recognized the relative strength early. This was a clean, high confidence breakout that didn’t require prediction, just observation. To me, it’s a wonderful example of how relative strength can lead price and point you toward the best opportunities, even on days when the broader market is working against you.

When Relative Weakness Speaks First: What AMZN vs SPY Is Telling Me

 

Above is a 2-hour chart of AMZN, and in the lower pane I’m tracking a ratio line of AMZN versus SPY. This ratio line is something I rely on heavily because, at times, it can act as a leading indicator often tipping its hand before price itself makes the message obvious. When I focus only on price, I’m seeing what everyone else sees. When I add the ratio, I’m seeing how that price is behaving relative to the broader market, and that perspective can be invaluable.

A great example of this showed up earlier on the chart at point A. The ratio line broke below the prior low well before AMZN’s price did. At the time, price action alone didn’t look particularly alarming, but the relative performance was already rolling over. That breakdown in the ratio was a subtle but important signal of underlying weakness, one that simply wasn’t visible by looking at AMZN in isolation. In the days that followed, price eventually caught up to what the ratio line had already been signaling, and AMZN trended lower.

Now I’m seeing a very similar setup developing again. The ratio line has once again broken down, this time pushing to a new low below point B, while price has not yet confirmed the move. To me, this is another clear indication that AMZN is underperforming the overall market. Even if the broader indexes are holding up, AMZN is quietly losing ground on a relative basis. That kind of divergence matters, especially when it repeats a pattern that has already played out once on the same chart.

From here, my focus is on the 115 level. That area stands out as key support, and it’s the line in the sand for how I’m thinking about this trade. If AMZN breaks below 115, that will be the confirmation I’m waiting for. At that point, price will be aligning with the message the ratio line is already sending, and I would expect lower prices in the days to come.

This is how I’m planning to play it, letting relative weakness guide me and waiting for price confirmation before acting. I’ve found that using the ratio line this way helps keep me on the right side of the market more often than not. Curious to hear your thoughts, do you use relative strength or ratio lines in a similar way, or do you prefer to rely strictly on price?