Two Uncorrelated Trades With "High" Potential

JC Parets
January 30, 2020

From the desk of Tom Bruni @BruniCharting

With our upside price objectives being met across in Equity markets across the globe, we've shifted our focus to buying Bonds and selling Emerging Market stocks with the expectation of a choppy environment for stocks as an asset class over the coming weeks and months.

With that said, just because the indexes may be choppy there will be winners and losers that we can take advantage of long and short.

In light of that, today we're reiterating our view on two pot stocks we outlined weeks ago that are still actionable and uncorrelated with the broader market.

First up is Innovative Industrial Properties Inc. (IIPR) which has moved back above our 81 risk management level to 4-month highs. Momentum is back into overbought territory and the rolling quarterly correlation with the S&P 500 shows a lack of strong correlation either way. With earnings 6 weeks away, we remain of the view that any weakness towards 81 should be bought and profits should be taken around 122.

Click on chart to enlarge view.

The Scotts Miracle-Go Company reported yesterday and broke out to new all-time highs. This breakaway gap signals to us that prices are now ready to resolve higher from a 4-year range and continue their long-term structural uptrend.

Correlation with the S&P 500 is positive for now, but it shifts around and changes quite frequently. As long as prices are above 110 we can be long with an initial target of 142. This is a structural breakout though and if it is successful then there's likely many quarters and years of upside ahead.

Despite all the noisemakers, there remain opportunities on both sides of the tape. We had a great run in stocks over the last four months, so some consolidation of those gains would be a normal and healthy development. In the meantime, we'll keep looking for skewed reward/risk setups like the ones outlined above.

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Thanks for reading and please let us know if you have any questions!

Allstarcharts Team

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