Under The Hood (09-25-2020)

From the desk of Steve Strazza @Sstrazza.

Welcome to our "Under The Hood" column for the week ended September 25, 2020.

What we do is analyze the most popular stocks during the week and find opportunities to either join in and ride these momentum names higher, or fade the crowd and bet against them.

We use a variety of sources to generate the list of most popular names. There are so many new data sources available that all we need to do is organize and curate them in a way that shows us exactly what we want: A list of stocks that are seeing an unusual increase in investor interest.

Whether we're measuring increasing interest based on large institutional purchases, unusual options activity, or simply our proprietary lists of trending tickers... there is a lot of overlap.

The bottom line is there are a million ways to skin this cat. Relying on our entire arsenal of data makes us confident that we're producing the best list each week and gives us more optionality in terms of finding the most favorable trade setups for our clients.

Here is this week's list of the most popular stocks. Now, let's see what's going on "under the hood" in these hot names.

Click table to enlarge view.

Let's start with two names we've had on our radar which continue to exhibit relative strength, and are both currently trading right around our risk levels.

First is Snap Inc $SNAP.

We continue to be impressed by the relative strength and resilience from this name during the market's recent pullback.

Like we said earlier in the month, we want to buy SNAP on a breakout above 26 with a 2-4 month target at 37. We're not quite there yet, but be ready as this move can happen any day now.

Next is Pinterest $PINS, which has broken above our risk level since we wrote about it back on September 4th.

Here is what we said back then:

We want to see relative strength start trending higher again and prices make a sustained move above 36.80. These things are likely to occur together. If and when they do, we want to buy strength in Pinterest with a 3-6 month target at 53.

Well, over the past few weeks we've seen both of these things occur. Price made a new all-time high on both an absolute and relative basis this week. We want to be long Pinterest using the risk levels mentioned above.

Now for Datadog $DDOG, which has been chopping around our risk level since we outlined a long setup in it back in August.

Price recently made a sustained move above our prior objective at 83.80 and has been showing relative strength as the market has corrected this month. This is a great example of the kind of stock we want to stick with and take another swing at despite already being stopped out of our initial trade. Above 84, we want to be long with a target of 117 over the next 2-4 months.

As for Zoom $ZM, one of the perennial members of our Under The Hood list... it's still one of the strongest stocks out there. Price continues to make new all-time highs relative to the broader market on an almost daily basis. Here's a look at a short-term chart, going back to the March lows.

Risk is not well-defined for our typical quarterly timeframe as price is right in between our past and present objectives. Although, if you already own Zoom or are looking for a more tactical trade, as long as it's above the recent pivot high of 478, we think price heads another 20% or so higher towards 584 in the near term.

We think the bigger takeaway about Zoom right now is the fact that it and many other stocks that led off the March lows are again outperforming and breaking higher. Seeing these leaders reassert their strength is a positive sign for the broader market and suggests we've likely already seen the worst in terms of the recent correction.

Now let's look at some fresh setups from this week's list.