Breakout trades are a well I have returned to time and again in recent weeks. But, hey, if it ain’t broke …
Today we’re looking at three more stocks to buy that boast compelling setups ahead of the weekend. The appeal of the ever-popular breakout pattern is simple. There are four groups of market participants: two are buyers and two are sellers. The former group consists of new bulls going long and old bears exiting shorts (buying to cover). The latter group involves new bears going short and old bulls exiting longs.
When a stock breaks major resistance, both buying camps are present while the selling groups are absent. Here’s what I mean: New buyers enter, and old short sellers exit to minimize damage. At the same time, new short sellers steer clear because the breakout is a powerful bullish signal. And old buyers stay the course not wanting to cut their gains short in the face of such strength.
Let’s take a closer look at three breakout stocks to buy.
Shopify (NYSE:SHOP) will end 2019 as one of the biggest gainers on the Street. It’s up 165% and could tack on additional profits over the final three weeks. It spent much of the fourth quarter carving out a correction, but after Thanksgiving, buyers returned in a big way.
The upside pop saw huge volume confirming institutions are backing the boom. Since then, we’ve seen a classic six-day high base pattern that has allowed SHOP stock to digest gains and set the stage for further upside.
You can either enter bull trades in anticipation of the next breakout or wait for a rise above $381 to confirm. Bull call spreads offer a low-cost path to profits on this expensive stock.
The Trade: Buy the February $380/$400 bull call spread for around $8.
Microsoft (NASDAQ:MSFT) isn’t a stranger to bullish patterns. Its history is littered with profit-giving pullbacks and Benjamin-filled breakouts. Its year-to-date gains aren’t as jaw-dropping as SHOP, but it’s also a much, much bigger company. The 50% rise could tack on a few more percentage points in the final few weeks.
The past month has seen a mini cup-and-handle formation that triggered this morning. Bull trades are worth a shot, and with the low implied volatility, bull call spreads make sense.
The Trade: Buy the February $155/$160 bull call spread for around $2.09
Our final selection calls the financial sector home. Credit card stocks have enjoyed a profitable year, and Mastercard (NYSE:MA) is one of the best. Its path has closely tracked that of MSFT with a 54% year-to-date gain.
MA stock’s 20-day, 50-day, and 200-day moving averages are all pointing higher in support of the trend. But resistance has cropped up over the past month near its 52-week high at $293. We’ve seen multiple attempts to rise above it, but none have succeeded. I suspect, however, that resistance’s days are numbered, and an upside breakout is looming.
As mentioned with SHOP, you can either deploy bullish plays now in anticipation of an upside resolution or wait for confirmation.
The Trade: Buy the April $295/$305 bull call spread for around $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!