From the desk of Steve Strazza @Sstrazza
Welcome to our latest Minor Leaguers report.
We recently decided to expand our universe to include some mid-caps…
For the first year or so, we focused only on Russell 2000 stocks with a market cap between $1 and $2B.
That was fun, but we wanted to branch out a bit and allow some new stocks to find their way onto our list.
The way we did this is simple…
To make the cut for our new Minor Leaguers list, a company must have a market cap between $1 and $4B.
And it doesn’t have to be a Russell component–it can be any US-listed equity. With participation expanding around the globe, we want all those ADRs in our universe.
The same price and liquidity filters are applied. Then, as always, we sort by proximity to new highs in order to focus on the best players.
But, instead of all-time highs, we’re sorting by 52-week highs these days, as we don’t want to discriminate against energy or other cyclical stocks.
The goal is still to catch the strongest names while they’re small and have serious upside potential. If any of these stocks ever climb the ranks to the big leagues, the returns could be huge.
We’re looking at up to 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.
We’re seeing more and more stocks and indexes resolve lower from distribution patterns and violate critical support levels. Many more are on the brink, challenging pivot lows and threatening to follow their path.
The Russell 2000 took out its 2021 lows earlier this year and resolved lower from a 12-month rectangle formation.
Fast-forward to today, and the Russell is trying to find its footing at the 2018 and 2020 highs:
This would be a logical level to carve out a bottom, but there are few signs of it yet. The bias is lower at the index level until these former support zones are reclaimed.
Even if we break back into these ranges, we’re still only looking at a sideways primary trend.
We should expect further weakness in this environment and will be best served to pick our spots selectively and not force longs.
We want to pay close attention to those names exhibiting relative strength through the recent volatility.
It’s normal for the strongest stocks during periods of weakness to emerge as leaders when the selling pressure subsides.
We want to identify those names now and be prepared for when the broader market finally turns the corner.
Let’s take a look:
Since we sort our list by proximity to 52-week highs, the names toward the top are potential future leaders. They’re not just exhibiting impressive relative strength. They’re also making new highs on an absolute basis.
With that as our backdrop, let’s take the field and highlight this week’s top players!