One of my favorite ways to find the strongest stocks to buy is to sort my watchlist by relative strength. Today we’re doing just that and laying out bullish trade ideas on three of the best-performing equities during the ongoing meltdown.
The relative strength index, or RSI, is my instrument of choice when sorting by performance. It’s a momentum indicator that measures the magnitude of price changes to identify when an asset has become overbought or oversold. It ranges between 0 and 100 with high readings signaling strength and low readings reflecting weakness.
Think about how this can help identify which stocks are holding firm in the face of the crash. The S&P 500 fell into a deep hole and is flashing an RSI reading at the lower end of its range. By contrast, today’s three selections all have RSI readings north of 50 and lie at the top of my list.
3 of the Strongest Stocks to Buy: Gilead (GILD)
RSI: 63 out of 100
Some of the strongest stocks to buy are in the healthcare sector. Both Eli Lilly (NYSE:LLY) and Gilead (NASDAQ:GILD) are among the leaders, but GILD has the higher RSI reading (63 versus 50). Plus, it’s ripping to a new 52-week high this morning. The fresh momentum has allowed GILD stock to break out of the range it has been locked in for a year.
Though the breakaway experienced some backing and filling, this week’s advance provides enough confirmation to justify betting with bulls. Besides, with the 200-day, 50-day, and 20-day moving averages all pointing higher, future pullbacks should prove shallow.
Since implied volatility is jammed to the 100th percentile of its one-year range, spreads are a smarter approach than buying calls outright.
The Trade: Buy the May $85/$90 bull call spread for around $2.
RSI: 53 out of 100
Initially, Amazon (NASDAQ:AMZN) suffered the fate of so many other technology stocks. Its share price fell 26%, matching the pain felt by the Nasdaq. But this week it started to differentiate itself. It appears investors are warming up to the fact that Amazon is uniquely positioned to thrive in a quarantined world. The e-commerce giant recently announced the hiring of 100,000 new workers to keep up with the increase in demand.
AMZN stock is ripping $110 or 6% today, extending its rally for the third day. The upside follow-through should embolden buyers because it’s something that has been utterly lacking from the broader market.
If you’re willing to bet that Amazon shares will sit above $1,700 at April expiration, then consider the following trade.
The Trade: Sell the April $1,700/$1,690 bull put spread for around $1.40.
Vipshop Holdings (VIPS)
RSI: 52 out of 100
Vipshop Holdings (NYSE:VIPS) is an online discount retailer for brands in China. Its stock price has held up very well over the past month, thanks to a robust earnings report that launched it to a new 52-week high. Though it briefly fell back below its 50-day and 20-day moving averages, today’s 8% rise pushed it back above both of them.
Volume patterns have also remained bullish during the drawdown with minimal participation on the down days. Today’s jump saw above-average volume suggesting institutions were piling in.
Bull call spreads offer a limited-risk way to play its next advance. Bid-ask spreads are really wide, so limit orders are a must here.
The Trade: Buy the May $15/$18 bull call spread for around $1.
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!