It’s official. Apple (NASDAQ:AAPL) has a $2 trillion valuation and the broader market is once again at new highs. Investors are ready to pop champagne bottles and drop confetti, but it is important to keep some realism in mind. One day, the stock market will crash again. And when it does, make sure you are ready with stocks to buy.
Five months ago, most investors would have thought such a record-breaking performance was impossible. But with the help of the Federal Reserve, the major indices have defied apocalyptic warnings and technical damage.
Now, the S&P 500 has surpassed its pre-pandemic high and the Nasdaq Composite has been setting a series of all-time highs since June. Are things guaranteed to keep getting better? Or is there a chance we could see things get worse?
When attempting to answer that question, remember that the novel coronavirus continues to plague the U.S. economy. That, to me, is reason enough to be cautious and take a step back. Ahead of September and October — months known for their bearish seasonality — investors need to make a short list of stocks to buy so they can be ready for the day when each inevitably goes on sale.
Here are three great companies to get you started:
Stocks to Buy: Tesla (TSLA)
The first stock to buy after the next correction or crash is electric vehicle champ Tesla. Shares have continued to be a momentum favorite among investors, helped by decent short interest and earnings strength that proved naysayers very wrong.
Technically, trend strength like Tesla’s can start to run on fumes. At a numbing market capitalization of $350 billion, shares are trading outside the monthly chart’s upper Bollinger Band. After a rocket rally, there is reason to believe Tesla is about to run out of gas. Toss in overbought stochastics as TSLA challenges multiple, under-the-radar Fibonacci resistance levels, and it’s definitely time to steer clear of this stock to buy.
Even the best growth stories like Tesla are vulnerable to larger corrections of up to 30%. And that’s in the best of market environments. In less-healthy periods, those setbacks could get a good deal worse.
My recommendation is to buy TSLA stock on a less gentle corrective pullback in an area from $1,300-$1,500.
The next of my stocks to buy is Nvidia. The semiconductor GPU outfit is another large-cap tech leader which has gotten ahead of itself. The price chart is similarly positioned to Tesla.
Bottom line: Nvidia’s aggressive stock behavior has created looming trouble for today’s more carefree investors. But with earnings out tonight, the risks of a correction are raised.
For Nvidia, I’d suggest making a purchase if shares can reclaim $375-$400. Better yet, investors might consider a campaign of accumulating shares with a more disciplined collar strategy following a mid-sized setback on the Nvidia price chart.
Stocks to Buy: Jack in the Box (JACK)
The last of my three stocks to buy is Jack in the Box. It’s not a name bandied about in the stock market like Tesla or Nvidia. That may have something to do with JACK’s much smaller market cap. But don’t make the mistake of turning a blind eye.
This fast food operator is everywhere. What’s more, it has been business as usual for JACK during the entire pandemic with drive-thru service, delivery and now even some dining room opportunities depending on one’s locale. To be clear, this isn’t a growth stock like TSLA or NVDA. Still, Jack in the Box has made itself known as key for many American’s go-to chain.
But Jack in the Box has gotten ahead of itself. In fact, my warning comes after buy-side analysis at the stock market’s absolute bottom. As others on Wall Street were smashing through the exits, I cherry-picked, JACK shares for investors.
This stock isn’t making new highs outside its Bollinger Bands and stochastics aren’t warning of overbought froth. But after Jack in the Box’s 400% rally, the stock is having problems overcoming price and Fibonacci resistance. With a monthly doji decision candlestick taking shape, heading for the exit before the crowd and staying in shape to buy into shares on a correction makes tons of sense.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. Investment accounts under Mr. Tyler’s management do not own any securities mentioned in this article. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.