Under The Hood (07-02-2020)

From the desk of Steve Strazza @Sstrazza.

This is the third edition of our new "Under The Hood" column. Read more about it here.

We are already getting positive feedback on this new strategy from "Mr. Market" as both of our trade ideas from last week's post are now in the top 5 of this week's most popular stocks (measured by the net increase in ownership, week-over-week).

In other words, Robinhood investors have been buying these names hand-over-fist since we wrote about them last week. They've been rewarded for it too as they've both performed very well.

Workhorse $WKHS has really lived up to its name as it hit our price target in a matter of days, and then went on to double again from there. The stock is up about 4-fold since it broke above our risk level near 5 early last week.

Here is a look at the updated chart, with the same exact annotations from last week's post.

Click chart to enlarge view.

Buyers really poured into the name this week as a net 75,000 new accounts purchased shares of the security.

To be fair, I know we said not to chase Workhorse and Plug Power, but if you did... it worked out just fine. If not, don't worry. There will be more just like them.

Here is this week's table. It represents the top 60 stocks that experienced net increases in ownership among Robinhood users over the past week. We've also included the net weekly increase in accounts that own shares.

Click table to enlarge view.

As you can see, only Gap $GPS saw a larger increase in share ownership than Workhorse over the trailing week.

Let's take a look at Gap now. This is a weekly chart zoomed all the way out to the mid-1990s.

After confirming a long-term double top pattern below 9, Gap collapsed and almost immediately hit our downside objective in March. Price has rebounded sharply higher in the time since. This one is a hot mess on just about every timeframe and is trading smack in the middle of its current range between 9 and 17. Nothing to do here.

Here's another one that Robinhood users were buying up this week, but we definitely don't want to be.

Pfizer $PFE just hit its lowest level relative to the broader market in over 25 years. This type of relative weakness is NOT a characteristic of an uptrend. But, we're going to keep it on our radar as it could make for a good short on a break below trendline support.

Similar to Pfizer, Office Depot $ODP is also exhibiting extreme relative weakness right now.

Late last year, price made a new 10-year low on an absolute basis along with a new all-time low relative to the Russell 3000. These are some ugly charts. I think it's safe to say, we are definitely NOT "down with ODP."

Last week, most of the charts we shared were of stocks making new absolute and/or relative highs as these are the types of setups we want to use to express our bullish thesis on stocks right now. If and when the time comes to bet against stocks, we'll be looking for more charts that look like Pfizer and Office Depot, above.

That's simply not the case right now, so let's take a look at some strong stocks...

First, let's check in on Tesla $TSLA, which we outlined a trade idea for in our first Under The Hood post a few weeks ago. We've actually put on several trades in this name already this year, all of which have hit their price targets.

Doesn't seem like this time will be any different with price at fresh all-time highs yet again. The electronic vehicle manufacturer keeps truckin' higher and is well on its way to our current price objective of 1,267.