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Editor’s Note: This article is updated weekly to bring you fresh trade ideas.
The risk-on rally is continuing in earnest on Monday. Headlines will point to the S&P 500 pushing to a new record high, but what traders should find most impressive is the breadth of participation. Buyers aren’t just coming after stocks. They’re scooping up commodities and Crypto too. Given the tailwind, this week’s update to the top stock trades gallery features three bullish ideas.
In scouting for the best opportunities, I found a diversified list to give you plenty of options.
First up is a red-hot retailer that has made bank of the post-pandemic economic recovery. Next comes an exchange-traded fund (ETF) offering a path to play a potential year-end breakout in small caps. Finally, we’ll break down a steel company that’s ramping after passing a recent earnings test.
That said, here are the tickers:
As always, we’ll do a quick rundown of each chart, followed by an options trade.
Top Stock Trades: Dick’s Sporting Goods (DKS)
Source: The thinkorswim® platform from TD AmeritradeEarnings growth for Dick’s Sportings Goods has been explosive over the past 18 months. Its best quarter EPS in the year before the pandemic was $1.26. It just reported $5.08. Its share price has reflected the incredible recovery by rising more than 10-fold from last March’s low. Spectators loath to chase will be happy to learn that DKS stock just pulled back 23% from its highs, providing a compelling chance to get in at lower prices.
The daily chart just completed an inverted head and shoulders pattern, confirming buyers are returning. Additionally, today’s 1.5% rally is pushing prices back above the 50-day moving average and suggests now is a smart time to enter.
Implied volatility is high enough to make spreads a better choice than buying calls outright.
Top Stock Trades: Buy the December $130/$150 bull call spread for $5.50.
You’re risking $5.50 for the chance to make $14.50 if DKS stock rises to $150 by expiration.
iShares Russell 2000 ETF (IWM)
Source: The thinkorswim® platform from TD AmeritradeIf you’re hesitant to chase the S&P 500 at all-time highs, then consider shopping small-caps. The Russell 2000 Index has done nothing for the last 10 months. As a result, we have a long-term trading range that could lead to some serious upside once resistance gets breached. The silver lining of price pausing is it has allowed earnings to play catch-up and stretched valuations to become less so.
Although IWM has been unsuccessful in breaking out of its range, I think it’s just a matter of time. And, with the bullish seasonality of November and December looming, a year-end run could finally deliver what bulls have been waiting for.
Over the past two weeks, small caps have pushed toward the upper end of the range, placing us within striking distance of another resistance test.
I like using bull call spreads to profit from the expected move higher.
Top Stock Trades: Buy the December $230/$240 bull call spread for $4.
You’re risking $4 to make $6 if IWM rises above $240 by expiration.
Top Stock Trades: Steel Dynamics (STLD)
Source: The thinkorswim® platform from TD AmeritradeThe basic materials sector benefits when inflation heats up. Nowhere has this been more apparent than in the steel industry. Consider the past four EPS quarterly numbers for Steel Dynamics: 97 cents, $2.10, $3.40, $4.96. Talk about an eye-popping profit surge! It’s no wonder STLD has doubled in price this year.
Though the stock didn’t move much after the latest report, prices are now breaking through resistance. We’re also back above all major moving averages, which clears out a lot of potential supply. Volume patterns have been heavily favoring bulls in the wake of last week’s report as well.
To capitalize on the follow-through from Monday’s breakout, consider the following idea.
Top Stock Trades: Buy the December $70/$75 bull call spread for$1.35.
You’re risking $1.35 to make $3.65 if STLD rises to $75 by expiration.
On the date of publication, Tyler Craig was long IWM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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