From the desk of Steve Strazza @Sstrazza
Welcome to our latest Minor Leaguers report.
We've already had some great trades come out of this Smallcap-focused column since we launched it late last year and began rotating it with our flagship bottoms-up scan, "Under The Hood."
To make the cut for our Minor Leagues list, a company must have a market cap between $1 and $2B. After applying price and liquidity filters, we simply sort by proximity to new highs in order to focus on the best players.
The goal is to catch the strongest names while they're small and still have serious upside potential. If any of these stocks ever climb the ranks to the big leagues, the returns could be huge. We're looking at 5-10x moves just to break into large-cap land!
Let's dive into this week's report and see what's happening in some of the hottest stocks in the Minor Leagues.
Despite the primary trend being higher, small caps have remained a choppy mess for more than 3 months now. Check out this continuation pattern in the Russell 2000 $IWM:
Until we get a resolution, the trend at the index level is sideways for the foreseeable future. As long as this is the case, we want to pick our spots selectively and not press longs as we had been up until a few months ago.
Regardless of the market environment, there will always be winners (and losers) coming out of this universe. But when we get a period of volatility or selling pressure as we're now experiencing, it can give us valuable insight as to which stocks are likely to be leaders once the corrective phase passes.
So we embrace times like these and use them to prepare for when the market inevitably begins trending again.
Remember, just because we outline certain levels for our trade ideas, it doesn't mean the trades will be put on tomorrow. Consolidations and corrective action can take time, and these trades can take weeks... even months, to trigger our entry.
Patience and cash continue to be good positions. There is no reason to force anything during these periods when the market is NOT trending. There will be plenty more opportunities in the future.
Now let's look at some of the recent leaders.
They're typically the very same stocks that are "bucking the trend" during selloffs. This price behavior is indicative of continued and sustained relative strength in the future.
Since we sort our list by proximity to all-time highs, the stocks toward the top of the table are potential future leaders as they are not only exhibiting impressive relative strength but also continue to make new highs on an absolute basis.
With that as our backdrop, let's take the field and highlight this week's top players!
Batter up...
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