JULY 17, 2020

Under The Hood (07-17-2020) From the desk of Steve Strazza @Sstrazza.

Welcome to our latest edition of “Under The Hood.” Read more about it here.

In this column, we analyze the most popular Robinhood stocks over the trailing week and find opportunities to either join in and ride these momentum names higher, or fade the crowd and bet against them.

This week we have a handful of trade ideas on the long side in a number of names that continue to exhibit impressive relative strength.

Let’s dive into it. Here is this week’s list of most popular stocks, measured by net increases in Robinhood accounts that hold shares.

Click table to enlarge view.

We’ll take it from the top this week and begin with the #1 stock on the list. We’ve recommended Tesla $TSLA time and again this year as it has continued to achieve our price targets in impressive fashion.

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With that said, the risk/reward is no longer what it was for this name so we’d definitely suggest taking profits up here if you still have a position.

As JC so eloquently put it on Twitter this morning, “all our targets have been hit… it’s someone else’s problem now.”

As we mentioned in our last column, Tesla was well on its way to our primary objective at 1,267. Well, it took that out right away and even came within points of our secondary objective at 1,800 earlier this week.

An interesting observation about Tesla is that over the past month or so as we’ve ridden the trend higher, it’s consistently been on the most popular stock list but never at an extreme like this week. It was increasing by about 10,000 – 20,000 accounts per week. Still very high, but nowhere’s near the 87,000+ accounts that added the stock this past week.

Seems like sentiment is getting overly frothy in the name. Another reason why we think it’s prudent to take our gains here and put that money to work in better opportunities.

Let’s check in on another mega-cap leader. Here’s Apple $AAPL. Similar to Tesla, the stock is trading at/near all-time highs on both relative and absolute terms.

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In our Q3 playbook, we wrote about how we’re seeing many of the strongest areas within Technology hit logical levels of overhead supply. Apple is just another example of this as prices are consolidating at the first Fibonacci extension from its Q1 drawdown. We’d rather be taking profits here and seeing how price reacts to this level.

Here’s Microsoft $MSFT. Apple is now the stronger performer of these two Technology behemoths.

You can see evidence of Microsoft losing steam here as price has been unable to hit its extension level and is now rolling over on a relative basis.

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Now for another big name. Here’s a weekly chart of Ford $F. The only thing this company has in common with Tesla is that they both make cars.

As for the charts, the two couldn’t look more different. Ford is testing its all-time relative lows from the Financial Crisis. We never want to be buying charts like this. Although, with risk-appetite picking up for the broader market, we also don’t want to be shorting it in the case we see some mean-reversion and rotation into these beaten-down names.

Here’s a name that we put a trade idea on last month, and after continued consolidation above our risk level, we like the same setup just as much, if not more, now. Here is Slack Technologies $WORK.

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Our risk is very limited and clearly defined at current prices. As long as we’re above the 29.50-30.50 area, we want to be long with a 1-3 month target back to the June highs and Fibonacci extension at 40.

Now for this week’s trade setups.

Moderna $MRNA is #2 on our list this week as 82,000 new Robinhood accounts added shares. This makes sense considering all the buzz around the company as it continues to make progress with a Covid-19 vaccine.

Moderna seems like a high flier with prices up about 600% over the past year, but when you look at the chart it’s actually a very orderly uptrend. Price has been stair-stepping higher and consolidating constructively at each next price objective since breaking out of its base in March.

We want to be long if we’re above the 423.6% extension and May high near 80 with a 1-3 month price target at 122.

Next is Chinese electric vehicle maker Nio Inc. $NIO. At #9 on our list this week, NIO had a net increase of about 21,000 accounts. Look at these multi-year bases resolving to new record highs on both relative and absolute terms.

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We want to buy weakness in NIO towards recent gap support and the 2019 highs which coincide around 10.70.

NIO recently registered two consecutive breakaway gaps as price rallied to fresh all-time highs. It’s currently digesting those gains, and as long as it does so constructively and remains above our risk level, we want to bet on another leg higher towards 18 over the next 1-3 months.

Now we have Walmart $WMT which is a new addition to our list this week.

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These Robinhood traders seem to be onto something as over 12,000 accounts added shares this week just as price presses up against all-time highs. Price has been flirting with breaking above the 132 level for three months now. Will the third time be a charm? We think so.

We want to buy Walmart on strength above its year-to-date highs with a stop at the 161.8% extension around 127.50 and a 1-3 month target at 155. This allows for some backing and filling while still offering a reward/risk ratio of about 4-5x.

Next we have a recent IPO, Cloudflare $NET which offers cloud-based cyber-security solutions. Software, Cloud, Cyber-Security, IPO space… we like all of these areas, and NET could fall into any or all of them. What’s not to like?

Since resolving higher from its base and making new highs in late March/early April, price has been in a steady uptrend on an absolute basis as well as relative to the broader market. After consolidating in a continuation pattern above the 161.8% extension, price rallied to our next objective around 34 and has been consolidating above this key level for the past month.

We want to buy Cloudflare against its recent lows near 34 with a 1-3 month target at 46.50.

Last but not least, here’s Taiwan Semiconductor $TSM which just made the last spot on our list this week.

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Just like Cloudflare, we love the industry tailwinds at TSM’s back as it is one of the largest semiconductor companies in the world. It is also the largest company by far on the Taiwanese Exchange, which we are very bullish on as well. Read our recent post about Taiwan here.

New all-time highs. Check. New relative all-time highs. Check.

We want to be long TSM on strength above 66 with a target at 86 over the next 1-3 months. Depending on your risk-tolerance, you can also buy weakness towards the Q1 highs at 60, and place your stop there. Even at current prices, this approach should yield you a reward/risk of about 3x.

We’ll leave you with a bonus chart. Here is Leju Holdings $LEJU which is a Chinese e-commerce and online media platform for real estate and home furnishing markets.

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We won’t be putting a trade idea on this name as we like to stay away from small-cap, low priced, and low float stocks that are susceptible to event risk such as LEJU. But we do very much like this multi-year base and think buying weakness towards the 2.30-2.70 area could make sense for those willing to take the risk.

When stocks like these move, they move fast. If this base breakout sticks, we’re likely to see much higher prices in the future. We’ll just have to wait and see.

That’s what’s going on under the hood in the most popular Robinhood stocks this week!

Thanks for reading and please let us know if you have any questions.

Allstarcharts Team