From the desk of Steve Strazza @Sstrazza
Welcome to our latest “Minor Leaguers” report.
To make the cut for our Minor Leagues list, a company must have a market cap between $1 and $2B. There are also price and liquidity filters. Then, we simply sort by proximity to new highs in order to focus on the best players only.
The goal is to catch the strongest names while they’re small and still 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 5-10x 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.
As we’ve been very clear about since Q1, small caps have been a sideways mess for a long time now. We’ve been waiting for a resolution from this consolidation pattern for about 5-months now… And it looks like it’s finally happening today.
Here’s an intraday chart of the Russell 2000 showing a downside breakaway gap as price slices through some key pivot lows:
Seeing a bullish continuation pattern like this fail and break lower is certainly bearish for small-caps, but it’s also a negative development for the broader market.
This is even more true when we consider the fact that SMIDs have been the laggards for almost all of 2021. When looking for market tops, we always want to pay attention to the weakest areas as they should be the first to show cracks. Well, that’s exactly what we’re seeing today as the Russell 2000 and S&P Midcap 400 are both breaking down and trading at their lowest levels since March.
Regardless of the market environment, there will always be winners (and losers) coming out of this universe. But when we go through a corrective phase as we have for much of this year, it can give us valuable insight as to which stocks are likely to be leaders once the storm passes.
So we embrace times like these and use them to prepare for when the market inevitably begins trending again.
Remember, just because we outline certain levels for our trade ideas doesn’t mean the trades will be put on tomorrow. Consolidations and corrections can take time, and these trades can take weeks… even months, to trigger an entry. So, set your alerts and be ready. But remain disciplined, and don’t jump the gun in the meantime.
Now let’s take a look at this week’s top players which have been bucking the trend through this volatile environment:
Since we sort our list by proximity to all-time highs, the names toward the top are potential future leaders as they are not only exhibiting impressive relative strength but also continue to make new highs on an absolute basis.
We continue to see a lot of Real Estate names in this scan as well as our other bottoms-up columns such as Young Aristocrats. We’re seeing more and more stocks from defensive sectors creep onto our scans in general lately. Seeing outperformance from these groups makes sense with the market coming under increasing pressure.
Because of this, we only have two setups today: one REIT and one Utility. Remember, patience continues to pay. There is no reason to force longs right now.
With that as our backdrop, let’s take the field and highlight this week’s top players!
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