From the desk of Steve Strazza @Sstrazza.
Welcome to this week's edition of "Under The Hood." You can read more about the column here.
What we do is analyze the most popular Robinhood stocks over the trailing week and find opportunities to either join in and ride these momentum names higher, or fade the crowd and bet against them.
This week we have a handful of trade ideas on the long side, many of which belong to the Health Care space and are working on Covid-19 vaccines.
We'll also walk through a number of mega-cap bellwethers and get a feel for what's going on in that space.
The stock market has been going crazy again this week, and maybe it's beginning to rub off on me... We usually only share about 10 charts in this post, but there is just too much going on in these names so I went a little crazy myself in looking through the charts for this week's post. We ended up with 14. Let's dive into it!
Here is this week's list of most popular stocks, measured by net increases in Robinhood accounts that hold shares.
Click table to enlarge view.
First, a quick note from the editor...
Not only do the charts of these popular stocks give us important information, but the popularity trends themselves are proving to be quite useful.
Teaser Alert: We are currently working on a tool internally which will allow us to visualize these trends much easier. It's in production now and we can't wait to share it with you all!
Based off just two months of tracking this data, one observation we've made is this: While you usually want to be buying a stock once it gets on the list, you're often better off selling than buying those stocks that get to a frothy extreme and find themselves at the top of our popularity list.
In last week's column, Tesla $TSLA and Apple $AAPL were great examples of this. This week, we're seeing the same thing from some other heavy hitters in the Technology space.
Here are two more long-tenured market darlings... Not only are they beloved "Stay-At-Home" economy stock but they're also FANG components.
First is Netflix $NFLX, which shot up to #4 on the list this week as more than 25,000 Robinhood investors added shares of the stock on a net basis.
In June, we put out a long trade idea in Netflix with a target at 540 and risk defined at 405.
Just like the Tesla and Apple charts we showed last week, this is yet another mega-cap tech name that appears to be stalling out at a logical level of overhead supply. Netflix hit our price objective at 540 earlier in the month and has since put in an ugly failed breakout at that level. We've made our money in this one. It's someone else's problem now. Just like the others, we'll keep it on our radar and see how prices react at this logical level of resistance.
Here is Amazon $AMZN with a similar look.
Amazon has hit TWO of our targets since April as the stock has been relentless with prices up almost 100% from their March low.
Just in case this theme of big-cap leadership hitting logical levels of overhead supply isn't clear yet, here's one last example... Chinese e-commerce giant, Alibaba $BABA.
This is a great chart. We're looking at a textbook cup and handle that resolved higher after 2.5 years of sideways action. But similar to the others, BABA has hit our price objective near 160, so we're taking profits here and watching how buyers and sellers interact at this level of interest.
We wrote a lot on the topic of mega-cap growth stocks approaching levels where we'd expect some consolidation in our Q3 playbook, which you can read here.
Now here's Pfizer $PFE which is this week's #1 most popular stock with over 54,000 new accounts. Although, when you look at its relative strength you'll notice this company is the complete opposite of the secular leaders we discussed above.
Price recently hit its lowest level since 1994 vs the broader market. While Pfizer has rebounded nicely off of support at the 38% retracement and its multi-year uptrend line, it still has lots of work to do before we like it on the long side.
Here's one we were shorting last week. It's actually Tesla's first name... Nikola $NKLA (the person, not the company).
We suggested selling NKLA on the breakdown below its 38% retracement near 61. Just three weeks later and it's already achieved our downside target of 36, resulting in a roughly 40% gain. The bias is definitely lower in this name for now.
Notice how its relative strength has completely stalled out as price is pressing towards its lowest level vs the Russell 3000 in almost two months. The weakness on a relative basis gave us good leading information when we first shorted the stock... and it's still pointing to further downside.
So, regardless of how popular these stocks are among Robinhood investors... we can still easily make money betting against some of them.. even during a raging bull market like we're in now.
We recommended Moderna $MRNA last week as the company has been making news around its Covid-19 vaccine. It violated our risk level at 80 this week but we think you can continue to buy weakness towards the June highs near 67 with the same target back to 122. As long as price remains above our prior objective near 55, the long-term uptrend in this stock is very much intact, and we'd expect higher prices in the future.
Here is an updated chart.
This week we have another few names we like on the long side which similar to Moderna, are also working on a vaccine and are included in our Custom Covid-19 Vaccine Index, below.
As you can see, this index continues to outperform the market aggressively, up about 200% from its March lows already. We want to continue to bet on the strongest stocks working on vaccines, as many of these names have already served us well over the trailing quarter.
We have FOUR new trade ideas below in some of the components of our Covid-19 Vaccine Index. Let's get started.
