Under The Hood (10-09-2020)

From the desk of Steve Strazza @Sstrazza.

Welcome to our "Under The Hood" column for the week ended October 9, 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. We have a diverse list full of new names, so let's dive right in and see what's going on "under the hood."

Click table to enlarge view.

Number one is the small multi-national Car Dealership, Group 1 Automotive $GPI.

Price gapped to new all-time highs this week, confirmed by strong volume and an overbought momentum reading. GPI also made fresh highs and broke out relative to the broader market.

After such a strong move, price is trading right between our initial breakout level and first upside target. This means there is no edge in the risk/reward at current levels. We probably want to stay on the sidelines and see how the stock digests these recent gains anyways. We'll be sure to keep it on our radar for now.

This is Integrated Shipping company, XPO Logistics $XPO.

This stock hasn't exactly been a leader among Transports recently, but it has been gradually improving relative to the Russell 3000. The bottom line is XPO is in a strong industry group and is trading just below a clearly defined risk level at its Q1 highs. There is no reason not to take a swing. We only want to be long XPO on a sustained move about 100 with a 3-6 month target of 138.

We also like Materials a lot. Along with Transports, they also closed out the week at a new all-time closing high.

This is Livent Corp $LTHM whish is a Specialty Chemicals company focused on lithium extraction technologies.

After gapping higher Monday on positive news and strong volume, price retraced lower towards the end of the week and closed just beneath its Q1 highs. We really want to see this name break to new highs on a relative basis as well. We'd expect this to happen in an environment where price makes a sustained move to new highs on an absolute basis.

If and when we get those fresh highs, we want to be long above 12 with a price target at 20 over the next 3-6 months.

This is Diagnostics & Research firm Guardant Health $GH.

Price gapped lower by about 7% mid-week just to rally back towards its all-time highs around 113. Momentum has been very strong in this name. Notice how it never hit oversold at the March lows. We want to be long on strength above 113 with a 2-4 month target at 148.

Now let's take a look at our favorite setups. With the market making a strong recovery there's a lot of them this week, so hope you're ready.