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Editor’s Note: This article is updated weekly to bring you fresh trade ideas.
The string of green candles in the S&P 500 is impressive. New highs have been a daily occurrence for the past three weeks. Given its now lofty perch, contrarians are understandably bellowing about the overbought conditions. Their argument has merit, but I’m still finding plenty of stocks offering low-risk entry. Three of these will be on display in this week’s top trades edition.
When you dig beneath the surface, you’ll discover that not every stock is mirroring the S&P’s pattern. Some have been retreating toward support. Others have been treading water to form a clean high-base pattern.
Rather than zero in on one specific sector, today’s picks come from technology, communications and retail.
Without further ado, here are three top stock trades for bulls to target.
After a closer inspection of their charts, I’ll share an options strategy for your consideration.
3 Top Stock Trades of the Week: Applied Materials (AMAT)
Source: The thinkorswim® platform from TD AmeritradeWhen it comes to semiconductor stocks, few boast as attractive a chart as Applied Materials. Its latest upswing saw a surge in momentum buttressed by multiple accumulation days. By comparison, its current pullback has been orderly. We haven’t seen any major distribution days crop up, suggesting garden-variety profit-taking and nothing more ominous.
AMAT stock has also been outperforming the broader semiconductor industry. In late February, Applied Materials held firm while most of its peers cracked through support zones. Its ramp to new highs outpaced that of the VanEck Vectors Semiconductor ETF (NASDAQ:SMH), making it an obvious leader.
Monday morning’s selling has intensified, so I suggest waiting until we break above a prior candle’s high before pulling the trigger. This will increase the chance your trade moves into profitable territory from the outset.
The Trade: Buy the June $130/$140 bull call spread
Target (TGT)
Source: The thinkorswim® platform from TD AmeritradeTarget is my favorite pick in the retail space right now. Its rebound following the earnings-driven correction has been extremely powerful. Selling pressure has been non-existent, and each bout of consolidation has given way to an easy breakout trade.
Normally when a stock nosedives on earnings, it suffers a hangover and struggles to rise for a spell. Target did nothing of the sort. Instead, it zipped to new highs on a steep trajectory fueled by multiple accumulation candles.
The last one was on Friday and signaled TGT is done resting and ready to run. Its relative strength is on full display this morning. While the S&P 500 is slipping, TGT stock is holding to its 0.50% gain. Implied volatility is relatively high at the 38th percentile and makes short premium plays attractive.
The Trade: Sell the May $200/$190 bull put for $2.15.
The max gain of $2.15 is yours to keep if TGT sits above $200 at expiration. The initial cost (and max loss) is $7.85.
Activision Blizzard (ATVI)
Source: The thinkorswim® platform from TD AmeritradeActivision rounds out our top trades with a cup-and-handle pattern that is on the cusp of completion. As we build the right side of the pattern, prices have stabilized above the rising 50-day moving average. This provides a clean base to build a breakout trade off of. All traders are eyeing the $99 zone. It marks the top of the recent range and a previous pivot on the left side of the cup.
Broader market selling has weighed on ATVI over the past two trading sessions, so it may need some time yet before the breakout arrives. However, for those looking to capitalize on the potential upside breach, the time to prepare a trade is now.
Implied volatility is in the lower quartile of its one-year range at 24%. Tack on the fact that ATVI has room to run to $104.50 once resistance gives way, and I think a bull call spread makes sense.
The Trade: Buy the June $100/$105 bull call.
The current cost is $1.50, but if you wait for a trigger over $99, the price will be higher.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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