From the desk of Steve Strazza @sstrazza

At the beginning of each week, we publish performance tables for a variety of different asset classes and categories along with commentary on each.

Looking at the past helps put the future into context. In this post, we review the absolute and relative trends at play and preview some of the things we’re watching to profit in the weeks and months ahead.

In last week's report, we played "devil's advocate" and laid out some of the more bearish developments we could find out there.

But all-in-all, the market is still providing bears less room to make a sound argument. We continue to find that any bearish evidence is primarily isolated to shorter timeframes... and even then, still overwhelmed by the abundance of bullish data points.

From the desk of Steve Strazza @Sstrazza.

Welcome back to our “latest Under The Hood” column for the week ending February 5, 2021. As a reminder, this column will be published bi-weekly moving forward, and rotated on-and-off with our new Minor Leaguers column.

In this column, we 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.

From the desk of Steve Strazza @sstrazza and Grant Hawkridge @granthawkridge

Marijuana stocks have been smoking hot over the trailing quarter, with the Alternative Harvest Marijuana ETF $MJ more than doubling since the election on November 3rd.

Considering this new leadership role over the near-term, today we're going to do a follow-up on our last deep dive into the space, which we published last fall.

Back then, we were simply looking for a bottom and mean reversion move higher, which we got... Now, with the industry making new highs, we want to see how things are looking on both an absolute and relative basis.

And as always, we'll check in on some of our past trades in the space and highlight today's strongest stocks, along with trade setups skewed in our favor that we want to use to express our bullish thesis.

Before we get into the weeds, let’s start at the industry level with the Alternative Harvest ETF (MJ).

From the desk of Steve Strazza @sstrazza and Louis Sykes @haumicharts

In a post last month JC discussed the recent strength in Commodities and posed the following question...

If the CRB Index is above its 2016 lows and Crude Oil is above all those former lows from the past decade, how can we be bearish commodities?

Over the last few quarters, we've seen more and more intermarket relationships make a significant shift in favor of risk-assets.

Many are showing early signs of a structural reversal and others simply accelerating in the direction of their underlying trend.

From the desk of Steve Strazza @sstrazza and Louis Sykes @haumicharts

New Mystery Chart!

For those new to this exercise, we take a chart of interest and remove the x/y-axes and any other labels that would help identify it. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. Maybe it’s a custom index or inverted, who knows!

We do all this to put aside the biases we have associated with this specific security/the market and come to a conclusion based solely on price.

You can guess what it is if you must, but the real value comes from sharing what you would do right now. Buy, Sell, or Do Nothing?

From the desk of Steve Strazza @sstrazza and Grant Hawkridge @granthawkridge

They say the Bond Market is where the smart money is. Maybe it is. I have no idea.

What I do know is that it's where a lot of the smart information is.

Due to the diversity among credit instruments, there is a swath of unique data that we can use not just for Bond prices and Interest Rates but also to glean insight into other asset classes.

I'm talking about things like TIPS for inflation expectations and Emerging Market or High Yield Bonds to analyze risk-appetite for other assets such as the stock market.

Alpha has been in Equities and risk-assets for a while now. As such, we haven't needed to discuss bonds from a portfolio perspective... but that doesn't mean we aren't paying close attention to these assets.

The Bond Market is overflowing with information. We'd be foolish to neglect it.

From the desk of Steve Strazza @sstrazza and Louis Sykes @haumicharts

At the beginning of each week, we publish performance tables for a variety of different asset classes and categories along with commentary on each.

Looking at the past helps put the future into context. In this post, we review the absolute and relative trends at play and preview some of the things we’re watching to profit in the weeks and months ahead.

As we discussed in our latest report, bears are running out of any substantial fuel to support their position.

And despite the arrival of some long-awaited selling pressure last week, that absolutely remains the case.

From the desk of Steve Strazza @Sstrazza

In a further effort to identify individual equities that fit within our larger Macro thesis, we recently rolled out our latest bottoms-up scan: "The Minor Leaguers."

We write a post every other week where we outline some of our favorite setups from the watchlist.

We've already had some great trades from this universe and couldn't be happier about the early feedback.

Moving forward, we'll be rotating this column with "Under The Hood" each week.

In order to make it onto our Minor League list, you must have a market cap between $1 and $2B. There are also price and liquidity filters.

Then, we simply sort the stocks by their percentage from new highs. Easy done.

From the desk of Steve Strazza @Sstrazza

As our Premium Members already know, we have a laundry list of scans that we run internally on an almost daily basis.

Different market environments, naturally, are more conducive to certain scans and less so to others.

For example, running our "Short Scan" right now is an absolute waste of time (which in itself is information about the current state of the market). On the other hand, our "Minor Leaguers" is perfect for the current environment due to its focus on Small-Cap stocks.

Our "Squeeze Scan" is also absolute gold for the current market. While Gamestop $GME is stealing all the thunder these days, it's not the only stock being propelled higher by short covering. It's happening more or less across the board in the most shorted names.

In fact, if you were to treat these hated stocks as a basket, they'd be outperforming even the strongest industry groups right now.

From the desk of Steve Strazza @sstrazza and Louis Sykes @haumicharts

The market is giving us absolutely no reason to play defense right now.

Regardless of the asset class, it's the risk-takers that are having their way in this environment.

Investors stretching out along the risk spectrum is a point we've been hammering home for some time now, particularly in our weekly RPP Reports - like this one.

Not only is this true on absolute terms, but we're also witnessing cross-asset relationships progress higher and in favor of risk-asset which can only be taken as a positive.

It's not often we see all asset classes in agreement with each other, but when we do, it's a significant driving force that supports the risk-on trade and suggests higher prices to come.

From the desk of Steve Strazza @sstrazza

Our most recent Under The Hood report was packed with a handful of buying opportunities. As usual, these names are all exhibiting bullish relative strength and offering investors well-defined risk levels to trade against... and of course, reward profiles skewed heavily in our favor.

In an environment like this one... where areas far and wide are making new highs, and even the weakest corners of the market are participating, there is no shortage of strong stocks floating to the top of our bottoms-up scans.

In recent months, this column (as well as the Minor Leaguers) has been dominated by smaller-cap names as SMIDs and Micro-Caps have been where all the buzz is among investors these days due to their aggressive outperformance.

Makes sense, right?

From the desk of Steve Strazza @Sstrazza

Welcome to the 2 to 100 Club.

Something we’ve been working on internally this year is using various bottoms-up tools and scans to complement our top-down approach. One way we’re doing this is by identifying 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.