Wednesday’s whack put bulls to the test. But they passed with flying colors. The speed of their return has me eyeing potential stocks to buy into weakness. Today we’ll look at three of the best.
The reintroduction of market volatility was bound to happen at some point. Low-volatility lulls never last. But the response of market participants to the sudden return of quick drops can be telling. Yesterday’s mid-day plunge over the uncertainty that a trade deal would get done by the end of the year lasted all of 30 minutes before buyers came racing back.
While there could be some aftershocks over the coming days, bulls aren’t likely to completely abandon the beautiful uptrend they’ve built.
I’ve shopped for the best stocks to buy on this pullback and found three worthy of consideration. Let’s take a look.
3 of the Best Stocks to Buy: Caterpillar (CAT)
October’s run in Caterpillar (NYSE:CAT) carried the construction giant through major resistance zones, finally reversing its weekly trend higher. The level of volume accompanying the breakout confirmed institutions were entering the fray and make it likely that the uptrend has staying power.
The current pullback is putting that narrative to the test. We’re quickly approaching old resistance at $140 and will soon learn if it becomes new support. If it does, bull trades are worth a shot.
Implied volatility is low enough (the 15th percentile) to make long premium plays attractive. I like bull call spreads here. Buy the Jan $145/$150 bull call for around $1.80.
The inevitable retreat in Microsoft (NASDAQ:MSFT) has finally arrived. After running for nine straight days, yesterday’s market slip finally ended the streak. This is a good thing! Pullbacks create more sustainable uptrends to benefit existing shareholders. And they provide lower-risk entries for new buyers.
While it would be welcome if MSFT stock dropped for a few days more toward the rising 20-day moving average at $146, I like buying the dip regardless of how shallow it ends up being.
The increasing momentum of its trend, the leadership of the technology sectors and the bullish seasonal winds all suggest the uptrend in MSFT should continue.
Like CAT, Microsoft boasts cheap options. The implied volatility rank is at the seventh percentile. Once again, bull calls are my spread of choice. Wait for the stock to take out a previous day’s high, then buy the Feb $150/$155 call spread.
Alphabet (GOOGL, GOOG)
Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) rounds out today’s list. It just carved out a record high and is pulling back for the fourth consecutive day to test its rising 20-day moving average. Signs of buying haven’t surfaced yet, but we’ve dropped enough where buyers typically emerge in a healthy uptrend.
The key with all of today’s picks is to wait for confirmation. Breaking above the prior day’s high is a popular tactic to ensure buyers have returned before deploying bullish trades. Today’s high of around $1,301 will suffice as our trigger. If GOOGL stock rallies above it, then bull call spreads are a go.
GOOGL has a bounty of strikes to choose from. For a lower-cost trade, I like buying the Feb $1310/$1330 bull call. It currently trades for $10 but could be more expensive by the time the stock triggers.
As of this writing, Tyler Craig held bullish positions in NVDA. For a free trial to the best trading community on the planet and Tyler’s current home, click here!