Earlier this week, the All Star Charts research team did a deep dive on China stocks. Say what you will about the political tension between our two countries, we speculators only care about where money can be made. And when it comes to China, using options to define our risks makes so much sense here.

One of the stocks highlighted is in the hot electronic vehicles space that has me interested.

From the desk of Steve Strazza @sstrazza

Our most recent Under The Hood report was packed with a handful of buying opportunities. As usual, these names are all exhibiting bullish relative strength and offering investors well-defined risk levels to trade against... and of course, reward profiles skewed heavily in our favor.

In an environment like this one... where areas far and wide are making new highs, and even the weakest corners of the market are participating, there is no shortage of strong stocks floating to the top of our bottoms-up scans.

In recent months, this column (as well as the Minor Leaguers) has been dominated by smaller-cap names as SMIDs and Micro-Caps have been where all the buzz is among investors these days due to their aggressive outperformance.

Makes sense, right?

Well, with the latest earnings season just kicking off and results beginning to roll out for all the Mega-Cap Growth names, we're seeing this change as investors' focus seems to be shifting back...

This week Howard and I talk about the short squeezes happening in this market. We've seen it in GameStop $GME, Blackberry $BB and AMC Theatres $AMC. Are more of them coming? Why should investors care?

How about the Speaker of the House of Representatives Nancy Pelosi trading Tesla Call Options. Should we complain about her trading habits, or do we use that as information? In other words, what does she know that the rest of us don't, that drove her to invest in so many options contracts?

Are you on Clubhouse? Is this the new Social Media App that everyone will be on? For questions like these, I always turn to Howard Lindzon.

We cover all that and so much more in the latest episode of Happy Hour w/ Traders:

This is the video recording of the January 28th Town Hall Meeting w/ Willie Delwiche & JC Parets.

01/28/21 2PM ET

Years ago, early in our marriage, my wife and I went to a car dealership with her dad to make one of those all important, young couple purchases: a new car.

While my wife and her father were chatting with the salesman, I was all over the car pushing every button, pulling every lever and opening every compartment. I wanted to know what was what, where things were, and how it all fit together. The three of them were a bit taken aback as I moved from the front seat to the back, methodically finding knobs and uncovering compartments that the salesman didn’t even know existed.

Our marriage survived that episode and I've got a great relationship with my father-in-law but we didn't buy the car.

I am a tinkerer by nature. My dad once rebuilt a motorcycle engine in the living room of the small apartment he shared with my mom shortly after they were married. The point is, I like to know how things work. I'm not afraid to pull something apart, look at the insides, and then put it back together. I always use all the screws and only rarely does a spring or ball bearing go missing.

So when it comes to the markets, I’m also interested in pulling indexes apart...

We noticed a weakening momentum in several indices across the globe even as big talk of 'Budget correction' started to gain traction. In order to benefit from the short-term negative move, we identified strong and weak sectors over a short-term time frame. For the first time in a long time, we also shared a bearish trade idea in our Trade of The Week post.

Today we're going to look at some more short setups that are on our radar, in order to benefit from the dip in momentum we're witnessing.

Read on to know more.

From the desk of Steve Strazza @Sstrazza

Welcome to the 2 to 100 Club.

Something we’ve been working on internally this year is using various bottoms-up tools and scans to complement our top-down approach. One way we’re doing this is by identifying stocks as they climb the market-cap ladder from small, to mid, to large, and ultimately to mega-cap status (over $200B).

Once they graduate from small-cap to mid-cap status (over $2B) they come on our radar. Likewise, when they surpass the roughly $30B mark, they roll off our list.

But the scan doesn’t just end there. We only want to look at the strongest growth industries in the market as that is typically where these potential 50-baggers come from.

Some of the best performers in recent decades – stocks like Priceline, Amazon, Netflix, and Salesforce, to a myriad of others… all would have been on this list at some point during their journey to becoming the market behemoths they are today.

When you look at the stocks in our table you will notice we are only...

Things are getting crazy out there. But this post isn't going to be about all the deadwood companies whose stocks are getting short squeezed. I'm looking at some of the biggest names showing signs of breaking out and this is something investors should not ignore. We got into Google (Alphabet) recently, and this might be a double-down of sorts, but now we're eyeing another mega cap.

From the desk of Steve Strazza @Sstrazza

We updated our Breadth chartbook a few days ago which Premium Members can check out here.

There are literally hundreds of charts with various breadth indicators from new high/low and overbought/oversold percentages to A/D lines, and more for not only the major averages and indexes but also each Large-Cap Sector SPDR.

What's this month's takeaway after spending a morning digging through our expanded workbook (that's right, there's more)?

Market internals continue to be a tailwind for stocks as we saw an improvement in the vast majority of our metrics again this month.

The Percent of global markets trading above their 50-day average is faltering. It's dropped to 78% (83% for Developed Markets & 74% for Emerging Markets). Below 70% is a warning for the market, below 40% is usually bad news.

Check out the Chart:

You can download this week's full Sentiment here:

Please let me know if you have any questions.

JC

From the desk of Steve Strazza @sstrazza and Louis Sykes @haumicharts

We continue to experience a bullish expansion in participation from stock markets around the world.

Just a few days ago we discussed buying Israeli stocks and explained how their strength at the index level was being driven by their heavy exposure to Technology.

Mega-Cap Growth and Tech stocks (we're including Communications and Discretionary here -- "Tech but not Tech" names such as Alibaba, Tencent, Meituan, JD.Com, etc.) are also a dominant market force in China.

We wrote about this exact topic in November, and how strength from these names would likely continue to propel these Large-Cap Chinese Indexes and ETFs higher. The Chinese Tech ETF $CQQQ and iShares Large-Cap China ETF $FXI tacked on an additional 24% and 12%, respectively in the time since.

Now, we're seeing FXI back to its key former highs and attempting to break out of a decade-plus base. ...

This week on the podcast, Jonathan Krinsky joins me for a chat about Sector Rotation. While the Mega-cap names like Apple, Google, Facebook, Amazon and Microsoft grinded sideways, or even down, since August, the Small-caps, Mid-caps and Micro-cap names have been the leaders. What happens if the Mega-caps break out of these bases to new all-time highs? Does the sector rotation continue? Or do we then rotate into the more defensive areas like Staples, Utilities and REITs, which currently keep making new relative lows?

Where does the US Dollar fit into all this? Will a Dollar rally bust the party and end the rotation into International equities and Commodities? We discussed all of this and so much more in a very short period of time. Jonathan Krinsky is the Chief Market Technician at Bay Crest Partners and puts out research for many long/short equity fund managers. He's a CMT like me and we've known each other for many...