To cut our Minor Leaguers list, a company must have a market cap between $1 and $4B, states Steve Strazza of AllStarCharts.com.
It doesn’t have to be a Russell 2000 component—it can be any US-listed equity. With participation expanding around the globe, we want all those ADRs in our universe. We apply our usual price and liquidity filters. And we sort by proximity to new 52-week highs to focus on the best players. The goal is still to catch the strongest names while they’re small and have serious upside potential.
Before we dive into this week's list, let's take a look at recent market action. While there's still work to do, it’s a bullish development to see buyers hold above and defend the prior-cycle highs. Here’s a look at the Russell 2000 $IWM:
The 2018 and 2020 highs represent a major polarity zone. As long as we’re above them, the bottoming process is still playing out, and we anticipate a new uptrend to take hold eventually. However, we should still expect further sideways price action in this environment and will be best served by selecting our spots selectively and not forcing longs. We want to pay extra close attention to those names exhibiting relative strength through the recent volatility. It’s normal for the strongest stocks during periods of weakness to emerge as leaders when the selling pressure subsides. Let’s take a look at this week’s table:
Since we sort our list by proximity to 52-week highs, the names toward the top are potential future leaders. They’re not just exhibiting impressive relative strength. They’re also making new highs on an absolute basis. If any of these stocks ever climb the ranks to the big leagues, the returns could be huge. We’re looking at up to ten times moves just to break into large-cap land! Our first of four setups today is a $3B burger joint.
Here’s Shake Shack (SHAK):
SHAK has carved out a bearish-to-bullish reversal pattern and reclaimed a critical level of interest. This level has acted as support and resistance in the past, making it a great place to define our risk and get long on a breakout. On a relative basis, the stock has already begun working its way higher from a similar basing formation versus the overall market. If it’s above 76.50, we want to own SHAK with a target of about 100.50 over the coming two-four months.
To learn more about Steve Strazza, please visit AllStarCharts.com.