After pausing last week, stocks were poised to jump right out of the gate Monday. And that has me eyeing quality bullish setups for the week ahead. Indeed, that’s always what chart watchers are on the lookout for when seeking stocks to buy. Low risk, high reward opportunities are the bread and butter of the tactical trader.
Last week’s four-day consolidation provided the perfect excuse for many high-flying stocks to take a breather. And that allowed two of today’s three selections to retreat to more attractive buy areas. As for the third stock, well, a strong rally into the weekend carried it to within a whisper of a monster breakout.
So if you’re returning from a weekend of rest and relaxation in a buying mood, consider today’s trio prime targets for stocks to buy.
Stocks to Buy: Alibaba (BABA)
We begin with Alibaba Group Holding Ltd (NYSE:BABA) which has populated many “buy” lists in recent months because of its resilient uptrend. BABA has been a dip-buyers dream, rarely falling below the 20-day moving average before rallying anew. Since carving out a new all-time high at $177 last month, Alibaba stock has formed a pennant pattern.
The consolidation has allowed the stock to work through the overbought conditions that arose after its large advance. And with the 20-day moving average now caught up and stocks jumping out of the gate this morning, I suspect the time for BABA’s next advance is nigh.
To capitalize, buy the Nov $170/$180 bull call spread for around $4.70. The risk is limited to your initial investment of $4.70 while the reward is limited to $5.50 and will be captured if BABA can rise above $180 by expiration.
Stocks to Buy: Valero Energy (VLO)
Valero Energy Corporation (NYSE:VLO) entered base-building mode at the beginning of the year and hasn’t exited it since. And while a stock going sideways may not seem noteworthy, it is when that particular stock’s sector is plumbing the depths. It’s a sign of relative strength. Simply put, while VLO stock has been treading water, the energy sector has been getting hit hard.
And that’s a win in my book. What attracted me to Valero shares was Friday’s pop, which resulted in a test of overhead resistance at $70. That price level has kept a lid on the stock all year long, and with the stock now trending higher with rising moving averages, I think it’s finally time for a breakout.
Buy the Oct $67.50 calls for $3.20 to capitalize.
Stocks to Buy: Alcoa (AA)
The final stop in our “stocks to buy” tour is Alcoa Corp (NYSE:AA). Metal stocks are hot right now and Alcoa stock is arguably the poster child for the space. Last month, it scored a rousing breakout — becoming well overbought in the process. Those who are loath to chase celebrated Friday’s large down day, as it brought the stock back down to an easier level to buy.
The 20-day moving average is fast approaching and is likely to provide support. While AA stock may pull back a day or two yet, its current perch is as good as any to begin initiating bullish exposure.
Buy the Nov $43 call for around $2.55. The risk is limited to the initial cost and the reward is unlimited.
As of this writing, Tyler Craig didn’t hold any positions in any of the aforementioned securities. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.
