Under The Hood (09-04-2020)

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. 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.

Whether we're measuring increasing interest based on large institutional purchases, unusual options activity, or simply our proprietary lists of trending tickers... there is a lot of overlap.

The bottom line is there are a million ways to skin the cat. Relying on our entire arsenal of data makes us confident that we're producing the best list each week and gives us more optionality in terms of finding the most favorable trade setups for our clients.

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.

Click table to enlarge view.

As usual, we'll start with a review of our open or recently closed positions and provide our current outlook and any important updates for these stocks.

Then we'll highlight a few new names that we're keeping on our radar for now but aren't actionable at current levels. Then of course, we'll end with a deep dive into our favorite setups from this week's list.

First, here's an update on Workhorse Group $WKHS.

A few weeks ago in this column, we said we were watching the ongoing consolidation in Workhorse as it looked constructive with prices digesting recent gains at our price objective. This week, the stock made a nice move higher and looks ready to start its next leg up.

One of the things that has our attention is the bullish volume profile during the recent continuation pattern. Just like the volume spike that confirmed the initial breakout in June, the current volume readings are once again supporting higher prices.

Notice how the volume on up-days is much larger than the shares traded on down-days? This is evidence that buyers are in control.

If we're above the 18-18.30 range, we want to own Workhorse over the next 1-3 month period with a target just above 29.

Here's another update on a stock that's treated us well in recent weeks/months. Here is an updated look at Crowdstrike $CRWD.

In our August 14th column, we said we wanted to buy CRWD above 100 with a short-term target at 140. In just about two weeks' time, it achieved our objective, returning nearly 40% based on the price at publishing.

On the flip side of things, in the past two days alone, price gave back nearly half of those gains.

I wanted to show this chart as it is an excellent example of the importance of taking profits (or losses) when our targets (or stops) are hit.

We put a lot of time and thought into determining these levels and planning our trades... but, it's up to you to take advantage of them and trade the plan accordingly.

I think there's a good chance we look back at this week's selloff and view it as a great buying opportunity, particularly for many of the market's leaders. Here's one of them, Facebook $FB.

On July 2nd, we outlined a long setup in Facebook above 219 with a target at 279. Price has since achieved our target and this week pulled back to retest this key level from above.

We'd like to see our former objective around 280 now act as support, which it is already showing signs of as buyers successfully defended it on Friday. If we're above this level, we remain buyers of Facebook with a 3-6 month target at 375.

Now here are some names we like, but just aren't actionable at current levels. Let's take a look, then put them aside and keep them on our radar for the future.

This is the London-based luxury fashion online retail platform, Farfetch Ltd $FTCH.

Nice base forming, but price just failed at its second attempt to break through its all-time highs around 32. Making matters worse, it violated a multi-month uptrend line as well. We think this base eventually resolves higher, but it will likely require some patience.

Looking in the bottom pane, there is also some work to do from a relative strength perspective. We want to see a sustained breakout to new record highs relative to the broader market also before we bet on this name.

Here's a name I never thought I'd see catch an increase in investor interest. Freeport-McMoran $FCX was left for dead by investors just a few short years ago as prices traded as low as ~3.50. In March, we saw something similar as FCX crashed over 60% from its year-to-date highs.

It's since tripled off those levels and is currently trading near its highest level in two years. We're actually seeing investor interest pick up broadly within the sector, which makes sense as the Materials Sector SPDR $XLB just closed out August at its highest level of all-time.

We would love to buy Freeport on weakness back towards the 13.75-14.75 range if we get it. Otherwise, the best course of action is to be patient and buy strength above 2018's highs just above 20 if/when we get it.

As for right now, there is nothing to do here as price is wedged right between these two levels and thus not offering a favorable reward profile.

Here's a freebie setup that we already gave to Premium Members recently, so we'll keep it short. Many of the Dow names that were both added and subtracted in the recent reconfiguring of the major average have seen an increase in investor interest of late.

Here is Exxon Mobil $XOM, which is one that just got the boot.

We're looking at fresh all-time relative lows as price flirts with breaking down from a rounded top on an absolute basis... We want to sell weakness beneath 39 with a 1-3 month target at the March low of 30.25.

For more on our thoughts about the recent shakeup and outlook for the Dow read our recent posts here, here, and here.

Now let's dive into our favorite actionable setups from this week's list.