Under The Hood (08-28-2020)

From the desk of Steve Strazza @Sstrazza.

Welcome to this week's edition of "Under The Hood."

What we do is analyze the most popular stocks over the trailing week and find opportunities to either join in and ride these momentum names higher, or fade the crowd and bet against them.

We are using a variety of new sources to generate the list of most popular names, which we'll explain more each week as we add new data sets. 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.

Last week, we added some stocks from a list of large institutional purchases we track, and this week we've added some names that experienced unusual options activity.

As we continue to include new sources, the number of potential trade opportunities we can choose from increases and gives us a larger universe of favorable setups to take advantage of.

With more and more new highs for stocks again this week, there are fresh breakouts and other favorable setups popping up everywhere.

Here is this week's list of the most popular stocks. Now, let's see what's going on "under the hood" in these hot names.

Let's kick things off by checking in on some of our current trade ideas. A lot of them are just now breaking out, so we want to make sure our clients are exploiting these asymmetric risk/reward setups.

Here's Peloton $PTON, which we wrote about in our August 7th edition.

Click chart to enlarge image.

Here's what we said back then:

This is looking like it has the makings of a potential failed breakout, so one could make a decent argument to bet against this name below 68. That is NOT the bet we’re making. This is a strong stock, and it’s in exactly the right space as one of the more popular “stay at home” products/services out there right now. It’s never smart to short the market’s leaders, especially not during a bull market. We like PTON long if and only if we’re above 68 with a target at 99 over the next 3-6 months.

Low and behold, we've experienced a false start and whipsaw move around our current risk-level in the time since. Although, just recently buyers seem to have taken control as the stock rallied nicely into the end of the week to close at a new all-time high Friday.

Peloton is also showing consistent strength relative to the broader market. We continue to like this name a lot.

Remember, there is nothing wrong with getting back into a trade you were just stopped out of. This is something some of the most disciplined and successful traders are able to do very well.

The setup we outlined earlier this month is still in play as price is comfortably above our risk level of 68 and packing an additional 30% of upside to our target.

In early July, we said we wanted to own Nvidia $NVDA above 390 with a target at 560.

Less than two months later, and Nvidia is just a stone's throw away from our objective.

We want to stay strong, stay long, and most importantly, make money. Let's look to take profits around that 560 level soon. Once we're there, we'll see how price reacts, and reassess how we want to approach this secular leader moving forward.

Spoiler alert: As long as the current relative strength and momentum trends persist, we're likely to continue betting on further upside for Nvidia.

Here's another one of our favorite semiconductor stocks, Advanced Micro Devices $AMD. While we've put out plenty of trade ideas for Premium Members to take advantage of the massive move in this stock over the past several years, the price has rallied so aggressively in recent months that we've discussed it but haven't found a good entry for our Under The Hood clients.

So, here it is. Keep in mind that price just broke out of a 20-year base so we want to be patient and give this setup time to achieve our objective.

We want to buy any and all weakness in AMD towards 75 with a 3-6 month target at 120.

Here's Slack $WORK, which we've already been stopped out of twice this summer. But, no skin off our backs as we lost about $1 on each trade.

We expect this to happen with roughly 2/3rds of trades which is why we have such a relentless focus on risk management and finding setups with clearly-defined stop levels.

Following through on this topic, we have absolutely no shame when it comes to managing risk. We always respect our stops and will gladly get in and out of the same trade multiple times, if that's what the market dictates.

As such, we're not ready to give up on Slack just yet.

We want to move our risk level up a dollar to about 30.50, and bet on price heading back towards June's high of 40 over the next 1-3 months.

Next, we have Nio Inc $Nio, which we outlined a trade idea for back in our July 17th edition. We said we wanted to own it above 10.70 with a target at 18.