Under The Hood (10-02-2020)

From the desk of Steve Strazza @Sstrazza.

Welcome to our "Under The Hood" column for the week ended October 2, 2020.

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

We use a variety of 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 this 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.

First, here's an update on Peloton $PTON which has been a nice winner for us already.

Less than a month ago, we said we wanted to take some profits after price achieved our objective near 100 but failed to break through it.

In the weeks since, price has consolidated constructively at this level of resistance, continued to exhibit impressive relative strength, and is now back above our risk level. The stock continues to make fresh all-time highs on both absolute and relative terms.

If we're above 99, we want to stay long and strong with a 3-6 month target at 150.

Next is DraftKings $DKNG, which is a more recent winner.

Price is ultimately at our price target so we want to get ready to take some profits for now and see how DraftKings reacts at this potential level of resistance.

Although, at fresh absolute and relative highs, DKNG continues to be among the strongest stocks in the market, so we'll definitely keep it on our radar.

Similar to Peloton, above, there's a good chance we'll revisit it for another long opportunity in the future.

The simple strategy of "sticking with what's working" has reaped us some nice profits this year, so as long as these stocks keep outperforming, we see no reason to stop.

But here's a new name which just made it on our list for the first time this week. Masonite International $DOOR is in the Materials sector, which is an area we like a lot right now.

Making things even sweeter, the company is a door manufacturer which makes it highly correlated with the Homebuilder Industry, which we also like a lot.

Price just broke out to fresh all-time highs on strong volume. DOOR is also at fresh highs relative to the broader market.

Unfortunately, the risk-reward isn't great at current levels. We'd only want to be buying this one on weakness back towards 90.

Let's stick with the home construction theme now and take a look at this week's new trade ideas.

In the past several weeks, we put out long ideas in two homebuilders: Meritage Homes $MTH and Century Communities $CCS.

This week, we have a few new names from the space on our list.