We've already had some great trades come out of this small cap-focused column since we launched it late last year and started 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. There are also price and liquidity filters. Then, 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 climbs 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.
When we last wrote this report, it looked as though small-caps we're about to break down as sellers were once again testing the lower bounds of this year-to-date range. In the two weeks since, buyers have made a kick save to defend this critical level ~210 yet again.
While the primary uptrend is intact, we're right back to where we've been since Q1 as the Russell 2000 $IWM is still a trendless mess.
Here's a look at the current continuation pattern with price trading right in the middle of its range:
Until we get a resolution, there is no directional bias at the index level for the foreseeable future. As long as this is the case, we want to pick our spots selectively and not force longs.
This is even more true when we consider that SMIDs have been the laggards for almost all of 2021. When looking for market tops, we always want to pay attention to the weakest areas as they should be the first to show cracks.
Regardless of the market environment, winners (and losers) will always come out of this universe. And when we go through a corrective phase as we have for much of this year, it can give us valuable insight into which stocks are likely to be leaders once the selling pressure alleviates.
For this reason, 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 doesn’t mean the trades will be put on tomorrow. Consolidations and corrections can take time -- and just like the major averages, individual stocks are no different. These trades can take weeks… even months, to trigger an entry. Set your alerts and be ready. But remain disciplined, and don’t jump the gun in the meantime.
Let’s take a look at this week’s top players which have been bucking the trend through this volatile environment:
Since we sort our list by proximity to all-time highs, the names toward the top are potential future leaders. They're not only exhibiting impressive relative strength, but also continue to make new highs on an absolute basis.
One thing that's stood out recently is the steady leadership from many of the stocks in this scan. We've continued to see many of the same names at the top of the list the past few months.
With that as our backdrop, let’s take the field and highlight this week’s top players!
Batter up…
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