From the desk of Steve Strazza @Sstrazza

Welcome to the 2 to 100 Club.

As many of you know, something we've been working on internally is using various bottom-up tools and scans to complement our top-down approach. It's really been working for us!

One way we're doing this is by identifying the strongest growth stocks as they climb the market-cap ladder from small- to mid- to large- and, ultimately, to mega-cap status (over $200B).

Once they graduate from small-cap to mid-cap status (over $2B), they come on our radar. Likewise, when they surpass the roughly $30B mark, they roll off our list.

But the scan doesn't just end there. We only want to look at the strongest growth industries in the market, as that is typically where these potential 50-baggers come from.

US Stock Market Indexes can be a funny thing. As investors we need to understand what's inside of them. Which stocks and sectors drive them higher or lower?

This seems like an afterthought in some circles, especially after the major large-cap indexes have put up nice returns the past 3 years. The S&P500, for example, was up 28%, 16% and 27% respectively in 2019, 2020 and 2021.

But at the individual stock level, it certainly didn't feel that way in many cases.

I have a good feeling 2022 will be the opposite. I think this year, the average and median stock has a higher likelihood to outperform the major indexes, for one simple reason.

No one owns a lot of these names.

We debuted a new scan recently which goes by the name- All Star Momentum.

All Star Momentum is a brand new scan that guides us towards the very best stocks in the market. This time around, we have incorporated our stock universe of Nifty 500 as the base. Among the 500 stocks that we follow, this scan will pump out names that are most likely to outperform the market.

While we go through our lists of sectors and stocks on a weekly basis, we thought of launching a product that would highlight the strongest performers in our universe. These are the ones that are primed for an explosive move.

Just like The Outperformers scan, this is a list of stocks belonging to the sectors that display relative strength in the market at any given point in time. Since sector rotation is the lifeblood of a bull market, we will be ahead of the curve before the gears keep shifting.

From the desk of Steve Strazza @Sstrazza

We held our January Monthly Strategy Session Monday night. Premium Members can access and re-watch it here.

Non-members can get a quick recap of the call simply by reading this post each month.

By focusing on long-term, monthly charts, the idea is to take a step back and put things into the context of their structural trends. This is easily one of our most valuable exercises as it forces us to put aside the day-to-day noise and simply examine markets from a “big picture” point of view.

With that as our backdrop, let’s dive right in and discuss three of the most important charts and/or themes from this month’s call.

Until now, the answer to the Growth vs Value question has depended on what type of market cap conversation you're having.

Through the end of 2021 Large-cap Growth was still a leader. It was the Small-cap Growth stocks that had been crushed most of the year, particularly when compared to the performance of Small-cap Value.

You can see the new 52-week lows in IWO / IWN coming into 2022:

From the desk of Steve Strazza @Sstrazza

Welcome to our latest Minor Leaguers report.

We’ve already had some great trades come out of this small-cap-focused column since we launched it in 2020 and started rotating it with our flagship bottom-up scan, Under the Hood.

We recently decided to expand our universe to include some mid-caps…

For about a year now, we’ve focused only on Russell 2000 stocks with a market cap between $1 and $2B. That was fun, but it’s time we branch out a bit and allow some new stocks to find their way onto our list.

The way we’re doing this is simple…

From the desk of Steve Strazza @sstrazza

This is one of our favorite bottom-up scans: Follow the Flow. In this note, we simply create a universe of stocks that experienced the most unusual options activity — either bullish or bearish… but NOT both.

We utilize options experts, both internally and through our partnership with The TradeXchange. Then, we dig through the level 2 details and do all the work upfront for our clients. Our goal is to isolate only those options market splashes that represent levered and high-conviction, directional bets.

We also weed out hedging activity and ensure there are no offsetting trades that either neutralize or cap the risk on these unusual options trades.

Another week, another IT trade setup that we're looking at. While there is a pickup in the market sentiment, the ideas with most conviction are coming through from IT.

Let's take a look at what we have today!

It's a new year!

Are you ready to crush it?

I am.

But it seems investors are coming in skeptical of what 2022 might bring.

As we've already mentioned, the data points to investors being much much more bearish coming into 2022 than they were going into 2021 or 2020, where they were incredibly bullish and optimistic going into those years.

But as we know all too well, stocks peaked in February of both those years, on an absolute basis in 2020 before the COVID crash, and internally in 2021 when many stocks started their declines.

The data is in.

2021 is in the books.

And it was a good one for most risk assets. Although the majority of stocks had their struggles at some point throughout the year, sector rotation continued to drive index prices higher. And it wasn't just stocks, risk assets in general had one for the record books.

The Average stock in the S&P500 was up 27.6% in 2021.

The Median S&P500 stock returned 25.2% for the year.

The market had been a mess for most of 2021. But even as the weakness persisted at the end of the year, we repeatedly highlighted the strength coming through in the IT space.

Well, this post is no different. We have breakouts, people! Let's take a look!

Below is the IT index with the important levels that we'd like to track.

Nifty IT has been sticking its head out every time we've looked for bullish momentum and strength in the market. And that strength is evident from the chart below when you look at the bottom pane of the chart. The relative strength pops right off the page. We can also see that the average drawdown has been a low 15% while most sectors have it way worse with no show of strength whatsoever.

What's our pick from the sectors even now?

IT.

Click on the chart to zoom in.