From the desk of Steve Strazza @Sstrazza.
Welcome to our “Under The Hood” column for the week ended September 18, 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.
Last week we talked about how Oracle is a secular laggard.
While that may be true, I think it’s important to play devil’s advocate this week as the stock is breaking out of a massive base despite its relative weakness. It’s also been in the news a lot lately due to its potential hook-up with TikTok.
If Oracle is above 60 the bias is higher.
Let’s look at some more long-term trends of stocks that made our list this week. It’s always important to zoom out and identify the structural trends at play.
An important thing to note is that while many of these might be long-term underperformers; when we see them break out we want to focus more on their short-term relative strength trends. If they are leading in the near-term, that’s good enough and should support higher prices and sustainable breakouts in these names.
Here’s Micron $MU.
While it’s been an underperformer in its space over the past several years its actually up about 20% over the trailing month and is by far the best performer among its semiconductor peers.
If we’re above 60, we’ll be targeting former record highs around 97. There’s still some work to do before we get the breakout we’re looking for though.
Here is one of the biggest names in Health Care which made some news this week due to a deal with Seattle Genetics, which we’ll cover later in this post.
This is Merck $MRK, zoomed out over more than two decades.
If and when price makes a sustainable move above its key prior highs at 91, we’ll be looking for further upside towards 135. Again, there is still some work to do as price is currently trading around 86.
Here’s another. This chart only dates back several years, but we believe if Twitter $TWTR can break out of this multi-year base, it will soon join its Social Media peers on the list of $100B+ tech giants.
Think about the fact that valuations are over a trillion in many of its competitors? Why shouldn’t Twitter deserve to trade at 1/10th the valuation of its peers? Doesn’t sound so crazy to me…
46 is the level we’re watching. We’ll be sure to follow up on this name as it’s been showing impressive relative strength of late.
Now for a long-term setup that is actionable right now. We covered two homebuilders last week – one of which (GRBK) is up over 10% since.
Here’s a new one with a similar long-term rounding bottom pattern. This is Meritage Homes $MTH.
As long as we’re above 97 we want to be long with a target at 153 over the next 6-12 months.
Now for an update on one of our recent winners. Have you seen Draftkings $DKNG?
We put a trade idea out on this one last week. In the few sessions since, price blew through our entry-level and is already halfway to our price target. Stay strong and stay long for now.
We covered Blink Charging $BLNK a while back as well. Price has consolidated since and is right back near our risk level and former all-time highs.
If we’re above 8.50, we think this can make a quick move back to our primary target just beneath 13 in the coming 1-3 months. After that, we’ll be looking to our secondary target just above 20.
Now for our Under The Hood poster child, Workhorse $WKHS.
We covered it in our very first edition, have consistently updated clients since, and are still writing about it now.
If you got in when we got in around $5 then you should be taking some off the table… but not all of it. The trend remains aggressively higher, especially after this past week’s run. Here’s a look.
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