The S&P 500 enters the third week of 2018 with a jaw-dropping 4.2% year-to-date gain. Were this blistering pace to continue, the large-cap laden index would finish the year up an unheard of 100%. We will undoubtedly see a slowing of the ascent in the weeks ahead, but why not join in the bullish revelry why it lasts?
Today we feature three of the best trades for the days ahead.
Because of the rousing start to the year, many equities have already stretched to the sky. And that makes low-risk entries a bit harder to come by. Remember, buying near support levels or well established bases is always preferable to chasing a stock that’s already lifted five to ten days in a row. While it’s true that the only candidates that still offer low-risk entries may have lagged so far this year, the tone of the tape has been for laggards to eventually play catch-up.
So let’s hop to it. Behold, three of the best trades for the week.
Best Trades for the Week: Roku Inc (ROKU)
Red-hot momentum favorite, Roku Inc (NASDAQ:ROKU), has taken a backseat thus far this year. Since peaking at $58.80, ROKU stock has shed 26% of its value. Despite the magnitude of the retreat, shares are still above the rising 50-day moving average, suggesting the intermediate- and long-term trends are still pointing higher. And that suggests this is a dip worth buying.
The elevated volatility is keeping option premiums juicy enough to sell. Naked puts offer a high probability avenue for betting ROKU is close to bottoming out and rising once more. Sell the Feb $35 put for $1.35. The max reward is limited to the initial credit received.
By selling the put, you are obligating yourself to buy shares at an effective purchase price of $33.65 if the put sits in-the-money at expiration.
Best Trades for the Week: Chipotle Mexican Grill Inc (CMG)
Chipotle Mexican Grill, Inc. (NYSE:CMG), once a high-flier, has been brought low in recent years. Bottom fishers have long circled the stock in hopes that an upside reversal would finally manifest itself. It appears their patience may finally pay off. CMG boasts a classic inverted head-and-shoulders pattern and it is currently testing the neckline at $330.
This horizontal resistance level has proved to be a pivotal ceiling for six months now. If the stock can finally vault back above it, buyers will have officially wrested back control of their favorite burrito chain.
To capitalize on the turnaround, sell the Feb $300/$290 bull put spread for $1.80 credit.
Best Trades for the Week Automatic Data Processing (ADP)
For our final selection, we turn to Automatic Data Processing (NASDAQ:ADP), which is on the verge of a monster breakout. ADP is trending above a rising 20-, 50- and 200-day moving average, confirming its uptrending status across all time frames. Over the past six months, the $120 zone has sat atop the stock like an impenetrable ceiling.
But the more the resistance is tested, the weaker it becomes. I think a breakout is imminent. On a breach of $120, buy the May $120 call options. Your risk will be limited to the initial cost and the reward will be unlimited.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.