Tech’s pain was the Dow Jones Industrial Average’s gain this week. Monday’s wreckage in the Nasdaq Composite sent shockwaves across a complacent marketplace. However, the damage was isolated and resulted in rotation instead of widespread liquidation. And in turn, money fleeing frothy tech stocks ran into the welcoming arms of the Dow Jones. So in today’s gallery, we’re looking at three of the best Dow Jones stocks to buy.
Tuesday’s numbers say it all. The Dow was the leading index, rallying 2.13% on the session. When’s the last time we could say that!? Comparatively, the Nasdaq was only up 0.94%.
For weeks, industrials have been left in the dust compared to the powerful muscle-flexing in technology. But not this week. This sector rotation must be frustrating for bears. Just when one leader gets shot, another quickly replaces it.
Therefore, while many tech darlings remain extended, most of the Dow components are just emerging from bases and offer lower-risk entries. That said, here are three of the best names:
Let’s take a closer look at their charts, and build trades to profit.
Dow Jones Stocks to Buy: Home Depot (HD)
Home Depot boasts an uptrend that is well-rested and ready to run. For the past five weeks, HD stock has been consolidating in the form of a symmetrical triangle. The series of lower swing highs and higher swing lows signaled a stalemate between buyers and sellers. It was a much-needed breather for a stock that went vertical off the March lows, ultimately rising $100 in a straight line.
As HD dithered, its 50-day moving average was able to play catch-up, and overbought pressures eased. Where Monday’s breakout attempt failed, Tuesday’s did not. The 3.27% rally saw heavy volume to confirm institutions were swarming. The stock is now a whisker away from taking out the previous record.
So, if you think the new upswing has legs, then buy the Sept. $260/$270 bull call spread for $4.50. The original cost is the risk, and the max reward is $5.50.
Walmart shares woke up earlier this month on news of the imminent release of Walmart Plus. The membership program will directly compete with Amazon (NASDAQ:AMZN) Prime, and has reignited excitement in WMT stock. Before the announcement, Walmart had quietly retreated to its pre-novel coronavirus levels. At the same time, its year-to-date profits dwindled to zero.
However since the July 7 rip, we’ve seen strong upside follow-through. Tuesday’s nearly 2% gain brought WMT to the cusp of a new record. If we’re able to clear the old high of $133.63, I think new buyers will rush in.
Implied volatility pushed higher this week, increasing the payout of bull put spreads. If you think Walmart can stay above $125 for the next month, then sell the Aug. $125/$120 bull put spread for $1.20.
All eyes turned toward bank earnings this week, and the response has been overall positive. The Financial Sector (NYSEARCA:XLF) ended the day on Tuesday higher by 0.51%. Traders yawned at JPMorgan’s results, leaving the stock with a doji candle on Tuesday. But with last Friday’s robust rally, it’s back above the 50-day and 20-day moving averages and knocking on the door of a breakout over $100.
Given that bank earnings weren’t bad enough to spark renewed selling pressure, I think they’ll work their way higher alongside the broader bull market. Couple that with the renewed interest in Dow Jones stocks and the fact that JPM has a clean entry over $100, and I think we have a trade.
The implied volatility rank is 24%, low enough to warrant premium purchases. Buy the Sept. $100/$110 bull call spread for $3.20. Consider it a bet that JPM can rise to $110 over the next two months. If it does, you’ll capture the max gain of $6.80. Your max loss is $3.20.
Tyler Craig is a member of the Chartered Market Technician’s Association and holds the CMT designation. His entire adult life has been dedicated to helping individuals learn how to trade as an elite instructor and personal mentor. To join his team and the best trading community on the planet, click here. At the time of this writing, Tyler didn’t hold positions in any of the aforementioned securities.