A few weeks back, as the market was zigging and zagging, I wrote about small cap action that caught my eye.
I noted that despite every media pundit and his dog preaching fear, the money was actually aggressively flowing into mid- and small-caps – not exactly the safe havens.
This observation was yet another data point to confirm my long thesis for the market, as it signaled a high appetite for risky assets.
As we all know, the market did turn out a good long at those levels…
It’s now time to talk about small caps once more, although for a slightly different reason.
We are not in the split market environment anymore.
The market and virtually every sector have resolved higher and confirmed the uptrend.
Nonetheless, we are still seeing a clear and continuous rotation down the market cap scale.
This is illustrated very well by the price action of size-based indices.
Take a look below:
Large Caps are the only group not in the clear yet, as they’re still battling their September resistance.
Meanwhile, Micro- and Small-Caps have all moved higher and are beginning to accelerate.
This is not just a signal of broader market strength anymore.
Smaller stocks are showing obvious relative strength and could be making a statement about themselves.
Russel 2000 – the small cap index, paints a similar picture when plotted against SPY:
Now, I will admit, this does look a bit extended near-term… IWM might need a pull-back from that resistance before it pushes through.
That said, it is definitely a breakout from the lows and it’s very consistent with a structural bear-to-bull reversal.
There’s one more chart that I need you to see.
Below, I plotted IWM/SPY of the past 30 years and marked every time we’ve seen similar momentum surges:
Since the 80s, we’ve only had 12 rate of change readings as extreme as the one we’re seeing now.
10 of them were either at the onset or in the middle of a period of Small-Cap outperformance.
There aren’t many reasons to believe this time will be any different.
At the end of the day, it all comes down to what you choose.
You may listen to talkers and live life in constant fear.
You’ll likely remember my rant on semiconductor stocks just this past week…
There’s plenty of data pointing to broad strength and further upside in the sector.
If I didn’t make myself clear, here’s why I’m so excited about this:
Let me quickly recap this for you, and show you why I’m stalking this one semi-conductor stock right now.
I normally try not to get overly excited but the chart just can’t help me:
As you can see, not only have they been outperforming the broader market, but semiconductors just broke out relative to the Tech sector as well.
This chart might literally be the single cleanest definition of Relative Strength.
And, as you’re well aware, I love to ride the wave, not fight the current.
Last week, I gave you away a couple of absolutely stunning charts.
This week, I’m adding another one to the list and it gives me the most goosebumps yet.
For one, it’s a great chart. For two, it’s Micron (MU)!
See, a few years back, during the original Semi-run, MU was a superstar.
The stock went from under $10 to nearly $65 in less than 2 years – making many fortunes and breaking even more short accounts in the process.
I remember times when MU would be traders’ main watch day in & day out.
As is always the case, the good thing must come to an end. It spent the past 2 years underperforming and doing virtually nothing…
Thus, I’m very excited to report MU might be plotting a comeback to the big stage:
This is a beautiful base to be emerging from, both absolute and relative!
Finally, it looks ready to catch up to its peers and regain its former glory.
This is a pure “keep-it-simple” long setup. A break and hold above long-time resistance – $63, in this case – is bullish with next obvious resistance at $84.
Those of you who love playing options will be happy to hear that the stock currently prices in the lowest volatility levels this year.
Listen, you’ve seen me make bold calls before. However, that’s just the tip of the iceberg when it comes to my extensive data analysis techniques.
If you really want to learn how to take data and price action and potentially turn it into some of the hottest trade ideas out there…
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We’ve officially resolved higher.
The uptrend continues and what do you do?
For me personally, I want to ride it up with the best stocks.
Right now, I see breakouts all over the place…
Truth is – should the market remain strong, traders really won’t need to be very picky, nearly anything can get them in green, if they have the right strategy.
Still, I wouldn’t be I, if I didn’t go a few steps further and dig some data to cherry pick the best ones (so you don’t have to).
The first trade idea is CareDX (CDNA).
This is a genomics research and diagnostics firm – in and of itself a great sector to be in.
Here’s what the stock looks like:
I think the chart more or less speaks for itself.
We just had a very clean break out of a base and to fresh all-time highs, both relative and absolute.
The stock is also one of the favorites of ARK Invest: it is among the larger holdings in their ARK Genomics ETF.
The key level here is $56. Above it I see further upside with the next inflection point at $83.
Zendesk (ZEN) is yet another exciting stock in a good sector – Software Industry.
The company provides a platform for customer relations and by the looks of the chart it must be a good one:
After establishing above long-term resistance at $95 earlier this year, the stock hasn’t really looked back.
It’s currently coiling very tightly in a continuation pattern at $122-$123 – both relative and absolute all-time highs.
The risk is very well defined here, so everything above $123 is bullish with the next resistance area at $167.
FICO is not just your credit score. It’s also a stock.
Well, it is the stock of that company that generates your credit score.
Fair Isaac Corp has come a long way this year: from losing over 60% by March to now breaking to all-time highs. Which happens to be the reason I love it so much:
Forget about the breakout for a second and look at that consolidation below $440.
I wish i could say every dip got bought, but in this case the dips weren’t even allowed! Just see that demand!
Now that we’re finally over that $440 – the sky’s the limit.
As long as we hold here, I’m bullish with a short term target at $605.
Listen, there are plenty of opportunities out there. From now on, you can expect a watchlist on the weekends, absolutely complimentary.
I truly want to help you be successful, and the best way I know of is teaching you how to uncover trade ideas with some of my favorite techniques.