The Minor Leaguers (01-29-2021)

From the desk of Steve Strazza @Sstrazza

In a further effort to identify individual equities that fit within our larger Macro thesis, we recently rolled out our latest bottoms-up scan: "The Minor Leaguers."

We write a post every other week where we outline some of our favorite setups from the watchlist.

We've already had some great trades from this universe and couldn't be happier about the early feedback.

Moving forward, we'll be rotating this column with "Under The Hood" each week.

In order to make it onto our Minor League list, you must have a market cap between $1 and $2B. There are also price and liquidity filters.

Then, we simply sort the stocks by their percentage from new highs. Easy done.

And what better time than now to launch a small-cap focused column!? We've seen very strong evidence of a structural rotation down the market cap scale, suggesting a new period of outperformance from small-caps in the coming months and quarters.

This column is a great way to take advantage of that trend. Let's dive right in!

Here’s this week’s table. We’ve sorted it by proximity to all-time highs, and included all those names that are within about 8.3%.

We've never had to stretch the filter to such a large drawdown percentage, but with Small-Caps falling by -4.5% on the week many of these names are now trading further off their highs than they have dating all the way back to last fall.

Since the column focuses exclusively on this cap-segment, let's take a look at the Russell 2000 $IWM chart for some quick context.

Ever since gapping to new all-time highs about three months ago, Small-Caps have booked a new record weekly close in all but ONE week. This past week was the second.

This is giving us a swath of opportunities as many of the strongest stocks have risen so aggressively, investors have had trouble finding good entries.

Well, there are plenty of pullbacks to support levels we want to be buying after this week. Let's check some out now.