Stocks suffered a late-day rug pull on Thursday after our Tweeter-in-Chief announced he’d hold a news conference on U.S.-China relations. Uncertainty surrounding what the President will say had traders heading for the exits. The reality is stocks have been on a tear and were due for profit-taking anyways. Despite the weakness, I was able to find many promising breakout stocks to buy.
Identifying the quality setups didn’t require much detective work. All I had to do was sort my watchlist by percentage change. Scouring the top gainers on the day is an effective method for spotting strength. Two of my three candidates topped the list. The third one was near the top in the morning, but selling late in the session ultimately removed it from the leaderboard. Nonetheless, its chart setup demanded a mention in today’s gallery.
Here are the three breakout stocks that I’m eyeing:
Recent strength has this trio courting resistance zones, and Thursday’s rally suggests a breakout is imminent. Let’s look at how you can capitalize.
Best Breakout Stocks to Buy: Snap (SNAP)
Investors hit Snap stock hard during the pandemic, but the comeback has been incredible. Buyers have returned as rapidly as they fled. With its 131% gain off the lows, SNAP stock has almost fully recovered from its 60% crash. Last month’s earnings report accelerated the comeback by sparking a massive overnight gap.
Since then, the price action has been constructive. We’ve made a few higher pivot lows, and the stock has held to the gains nicely. Thursday saw the stock run 7.35% to close near the high of the day. It’s impressive that it stayed afloat despite the profit-taking striking the broader market. With the gains, SNAP stock is now a whisker away from breaking resistance at $18.50.
If it does, then a climb to $20 is likely. For a higher potential reward, you could buy the stock. Otherwise, I like selling the July $16 puts for 55 cents.
Electronic Arts (EA)
Electronic Arts has been among my breakout stocks for weeks. But it just hasn’t been able to gather enough momentum to breach $120 resistance and hold its ground. If the action over the past two trading sessions is any indication, however, it’s finally ready. I love Wednesday’s nasty shakeout. The downside feint likely suckered in sellers before ripping higher by day’s end. Thursday’s followthrough was fantastic and had the stock notch its highest closing price since August 2018.
Volume patterns are also hinting at this attempt succeeding. The past two sessions saw above-average volume confirm big buyers were on the move.
You could buy EA shares for a straight stock play, or use call spreads to cheapen the bet. Buy the July $120/$125 bull call spread for around $2.70. The potential profit is $2.30 and will be captured if EA stock sits above $125 at expiration.
Aurora Cannabis (ACB)
After lying dormant for most of the year, cannabis stocks are all of a sudden hot. Strong signs of accumulation are cropping up in not just Aurora, but Tilray (NASDAQ:TLRY) and Canopy Growth (NYSE:CGC) also. Of the three, ACB stock has the most attractive pattern right now.
Its May 14 earnings report sparked a massive revival that sent shares up nearly 300% in three days. We’ve since seen the stock consolidate in a narrow range. The basing is well-deserved after such a moonshot and is helping ACB stock work through overbought pressures. Given its explosive tendencies, it’s worth watching for the next breakout.
There are multiple short-term resistance levels you can use to trigger, but I like $18. The liquidity in Aurora Cannabis’s stock options isn’t great, so a straight stock purchase on the breakout is probably best.
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