With the market rebound breathing new life into beaten-down equities, investors want to know which stocks are worth buying right now. I can think of a few candidates, but the relative strength of Nvidia (NASDAQ:NVDA) has NVDA stock at the top of many traders’ buy lists.
If we take a sector-centric approach to identify market leaders, then the technology sector quickly becomes a front runner. It was leading the market before the crash, has fallen less during the crisis, and is one of the best-looking areas as we enter week three of the market rebound.
To add some meat to those bones, here are some numbers to chew on. First, the Nasdaq-100 ETF (NYSEARCA:QQQ) was up 11.7% at its February peak. The S&P 500 was only up 5.4%.
Second, the peak-to-trough drawdown in QQQ was 31%. By comparison, the S&P 500 fell 36%.
Third, at Tuesday’s high, QQQ pushed back above its 200-day moving average. The S&P 500 isn’t even close to the north side of its 200-day.
Given the relative strength of tech, it should come as no surprise that many of its constituents have price charts that are holding up best. Semiconductors in general and NVDA stock, in particular, are all flashing healthy recoveries.
NVDA Stock Charts
The volatility during Nvidia’s downturn has been harrowing, but if you held through the dip, your intestinal fortitude has been rewarded. The weekly trend has recovered to the high side of its 20-week moving average, which is still pointing higher. The 50-week and 200-week moving averages are also trending northbound.
On the momentum front, the RSI momentarily slipped below 50 into bear country but has since returned. At 57, it’s now safely tucked in the bull zone. While we will likely see continued volatility, there’s no denying the speed and strength of Nvidia’s recovery makes it one of the best stocks to bet on making new highs first.
The daily time frame reveals greater detail of Nvidia’s dip and rip. Buyers swarmed at the rising 200-day moving average, making the stock one of the few that didn’t plunge below this long-term level. The subsequent rebound thrust NVDA back above its 20-day and 50-day moving averages, placing it in rarified air.
Daily momentum, as reflected in the RSI, also finds itself on the high side of 50. I don’t see a clear entry point on the chart due to the large day-to-day swings and wide-bodied candles. But in the current market, if you’re waiting for a perfect pattern, then you’ll probably never place a trade.
Yesterday’s nasty intraday drop makes me want to wait and see if we get a chance to deploy bull trades at lower prices. I suggest at least waiting to see if this morning’s up-gap holds.
To provide plenty of room for the stock to fluctuate, let’s use bull put spreads.
The Trade: Sell the May $210/$200 bull put spread for around $1.80.
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