Fear has officially returned. So says the CBOE S&P 500 Volatility Index or VIX, which is spiking to its highest level since Jan. 4. Today we’ll provide context to the panic and identify three stocks to buy.
At this morning’s peak of 23.38, the VIX was pricing in daily moves for the S&P 500 close to 1.50%. For a market that has been averaging around 0.25% to 0.50% each session, this represents a huge increase in volatility expectations and is one of the primary reasons for the heightened investor anxiety.
While many stocks are being dragged behind the woodshed, some are holding firm amid the meltdown. It is these companies that make the most attractive dip buy candidates once the smoke clears. While it may be a few days before the selling pressure finally abates, you should build a shopping list of the strongest stocks to buy during the inevitable rebound.
Consider today’s selections worthy additions to your list.
With yesterday’s earnings release now out of the way, traders can swing away in Disney (NYSE:DIS) without fear of a large down gap stealing their dough. Although we didn’t see any fireworks after the number, DIS stock didn’t need a sizeable post-earnings jump to confirm buyers are in control. They’re already dominating and have done an admirable job delivering followthrough to last month’s big-league breakout.
Thus far, Disney shares have held up quite well during this week’s market meltdown. Support near $132 is holding steady, and the stock has yet to even break below the rising 20-day moving average.
Implied volatility remains high despite earnings now residing in the rearview mirror. This makes me think bull put spreads are worth a shot. If DIS can pop above today’s high, then sell the June $120/$115 bull put for at least 50 cents.
With today’s sub-1% dip in Facebook (NASDAQ:FB), the social media king came one step closer to filling last month’s earnings gap. For now, the 20-day moving average is acting as a potential support zone. Compared to the steepening breakdown in the Nasdaq-100, the mild pullback in FB doesn’t look bad at all.
It remains one of the few stocks still on the high side of the 20-day moving average. Volume during the retreat has remained subdued, reflecting a lack of urgency by institutions to head for the hills. This bodes well for the stock moving forward and makes FB a top pick among dip buy candidates right now.
If FB stock can take out a prior day’s high and show a bounce is emerging, consider bullish trades with a target of $200.
The bull case for Amazon (NASDAQ:AMZN) deteriorated slightly today but is mostly still intact. This morning’s breach of the 20-day moving average revealed a weakening of its short-term uptrend, but not yet a reversal. For that we’d need a close below $1,880, which is being tested as I type.
Regardless of its fate today, the intermediate-term and long-term uptrends are still pointing higher, suggesting buyers still deserve the benefit of the doubt. Last year’s highs of $2,050 remain in play and a potential upside target once the latest tariff trauma dies down.
Implied volatility remains high enough to make short premium plays attractive. And since AMZN may chop around for a bit, a cash flow play is preferable to a more directional bet anyways.
If AMZN can break above a prior day’s high, then sell the June $1700/$1690 bull put for $1.50.
As of this writing, Tyler Craig held bullish positions in DIS. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.