The ranks of strong stocks are dwindling. But there are still a few diamonds in the rough that belong atop any stocks to buy list. But first, some context is in order.
So far, October is living up to its bad reputation. It’s not only the home to ghosts and goblins but bears and blood. Many of history’s sharpest selloffs have come during the fall season. So you’ll forgive the occasional investor who views the tenth month with a bit of trepidation.
The S&P 500 slipped below the oft-watched 50-day moving average earlier this month and has yet to recover. Price followers know that bad things happen on the south side of this smoothing mechanism. Caution is warranted until we return to the topside and bulls return.
But that’s what makes today’s list so attractive. It includes muscle-flexers with relative strength worth bragging about. Let’s take a closer look.
If you’re seeking a bullseye, head to Target (NYSE:TGT). The retailer scored a jaw-dropping jump after its last earnings announcement and hasn’t given back an inch since. Its ability to remain aloft despite the broad market drama is the definition of relative strength.
Just yesterday, TGT stock tagged a record high, briefly eclipsing the top of its six-week range. This can only be viewed as a good omen, a gift with the potential for more giving. While it may take the broader market getting out of its way before bigger gains arrive, TGT is heading higher.
Bull call spreads present a clean way to profit from more upside. Buy the January $110/$120 bull call spread for $3.75. The risk is limited to your initial cost, and the reward is $6.25.
With earnings season fast approaching, many traders are likely hesitant to plow into individual companies. After all, these quarterly reports are the ultimate 50-50 proposition where guessing the outcome is a coin flip. Fortunately, for Nike (NYSE:NKE), the announcement has already happened. And investors loved it, pushing NKE stock to a new record. They will be no fundamentally-driven news to disrupt what is undoubtedly a bullish chart.
Nike came up on one of my scans for relative strength. Of all the liquid stocks in the market, NKE has one of the highest RSI readings on the board.
While the stock may need some backing and filling before a new up-leg arrives, the path of least resistance is higher. And with implied volatility in the tank, long premium plays are attractive. Buy the January $95/$105 bull call for around $3. The risk is capped at $3, and the reward is $7.
Costco Wholesale (NASDAQ:COST) rounds out our trio and carries similar characteristics to its predecessors. Its earnings report has come and gone for the quarter, and while the initial response was a yawn, we’ve since seen strong upside followthrough, particularly given the crummy broad market backdrop.
COST stock sits a stone’s throw from record highs, and with every major moving average pointing higher, I suspect the prior peak to fall sooner than later.
Buy the January $300/$310 bull call spread for around $4.40. The risk is limited to $4.40, and the reward is $4.60.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here!