Another ArticleProfit taking brings high-flying Canadian marijuana stocks back to earth Republish Reprint MidasLetter | November 21, 2016 3:07 PM ET More from MidasLetter . High-flying marijuana stocks are on the back foot today, as a wave of profit taking induced by repeated "circuit breakers" halted trading five times in stocks last week. Is the rally over? Associated PressHigh-flying marijuana stocks are on the back foot today, as a wave of profit taking induced by repeated "circuit breakers" halted trading five times in stocks last week. Is the rally over?. Twitter Google+ LinkedIn Email Typo? More . The outcome is inevitable. Whenever any single market segment goes up consistently over days on increasing average daily volumes, the only question is when, not if, a hard reversal is on the horizon. For Canopy Growth Corp., Supreme Pharmaceuticals, Organigram Holdings Inc. and Aphria Canadas leading marijuana stocks that day came when exchange administrators triggered circuit breaker logic to halt trading five times to cool demand. While achieving the desired effect, that action appears to have also triggered the hard reversal described above. Traders who pile into momentum movers like the marijuana stocks are general opportunists, in large part. The anomalous price/volume increase is one of the key signals monitored by millions of algorithmic programs that conveys the emergence of an opportunity based on momentum. To avoid getting caught at the top of the market, sophisticated traders look for any signs that the momentum has reached its apex, and is no longer sustainable. Bloomberg BloombergCanopy Growth's stock Monday.. At that moment, algo traders and shorts pile in to maximize the opportunity on the downside, all of which exaggerates what would otherwise be a more natural and less volatile market movement. While circuit breakers undoubtedly have the effect of kneecapping unbridled momentum, they also have the unintended side effect of inducing a reversal in momentum. That is the phenomenon underway today, in large part. And just as the upside tends to be overdone in terms of momentum driven price spikes, the same applies to the sell-off. But once the nascent phenomenon in an emerging asset class of unprecedented price/volume has peaked, that will be that for a lot of traders, who will then go off to find other volatility signals. Trying to figure out what these companies are actually worth is the challenge. Without exception, valuing them on their balance sheets alone demonstrates in no uncertain terms that the recent heights cannot be thus justified. The valuations reached in the last two weeks are the result of speculation, pure and simple. The nature of the speculation is not based on what is the fair value of this company, but rather how high can this stock be driven based on the irrational exuberance and expectation this stock has generated? Related Canopy Growths banner year and a billion dollar valuation Marijuana stocks stealing all of the action in Canada by unprecedented volumes The valuations are really stupid: Marijuana stocks spike trip circuit breakers, temporarily halted . So while sophisticated models might come up with an ostensibly credible predictive algorithmic program, most opportunistic momentum traders shun fundamentals in favour of technicals. In inexperienced hands, technical analysis based on trade data has always been an exceedingly reliable method for predicting the past. Under the expert application of Chartered Market Technicians, they become arguably more relevant, though that is not my area of expertise. For now, the signal is clear: conservative investors will likely have opportunities ahead to buy at cheaper levels, though will probably wait for some semblance of a visible floor in the share price, and a diminishment in volatility, to consider re-entering, or adding to positions. That will happen once the crazy momentum volatility play is over. At this point, trading suggests it is still very much alive, but trending downward. As at 10:50 am ET Monday, shares in Canopy are down 12.78 per cent from the opening price of $12.45 on volume so far of 3.16 million, at about $11.00 per share. That is down 38.41 per cent from its intra-day record set on Nov. 16 of $17.86. James West is an investor and the author of the Midas Letter, an investing research report focused on Canadian markets. The views expressed are his own and are presented for general informational purposes only. They should not be construed as advice to invest in any securities mentioned. James West and/or associated funds do not own shares in any securities mentioned in this article. For the full Midas Letter disclosure policy, click here. Postmedia and Midas Letter have a revenue sharing arrangement.