Traders rooting for a pullback in leading stocks should be rejoicing. The Nasdaq Composite just printed its third consecutive down day, and we now have a bounty of buy-the-dip setups across the entire technology sector. Today I’m laying out my favorite tech stocks to pursue.
To narrow down the list of choices to only three candidates, I focused on a few key characteristics. First, I looked for uptrends that saw increasing momentum on the last advance. The growing strength makes it more likely that buyers will pounce on the pullback. My next consideration was the stock’s posture relative to its moving averages. I favored those with shallow retracements, still above their 20-day moving averages. I avoided any tech stocks that cracked major support zones.
With that said, here are my top three tech sector picks.
After a brief review of their price charts, I’ll suggest an options trade.
Tech Stocks: Advanced Micro Devices (AMD)
The meteoric ascent in Advanced Micro Devices this year has been incredible. But no one can deny it entered this week in desperate need of a correction. Since the July 22 breakout, AMD stock had rallied nearly 50%. Overbought readings were screaming for a pause. With $10 now lopped off its share price, we have a much more palatable entry for spectators hoping to get in on the action.
Tuesday’s 6.52% loss created a nasty bearish candlestick. In an ideal world, we would get an easy reversal candle on Wednesday to signal that support has been found. Regardless of when the turn comes, we’ve dropped enough to consider deploying new trades.
If you want a higher probability of profit, consider selling bull put spreads.
The Trade: Sell the Sep $65/$60 bull put spread for around 70 cents.
Think of it as a bet that AMD stays above $65 through September expiration.
Mobile payment tech stocks like Square and PayPal (NASDAQ:PYPL) have been red-hot. Even after rising 100% in the preceding quarter, Square still found the strength to jump higher after last week’s awesome earnings report. Fortunately, the past three days of selling have filled the earnings gap, returning prices to a potential support zone.
Late-day selling caused SQ stock to give back some of its intraday gains, but it still ended with a doji candle. The stalemate suggests the downside momentum of the previous two sessions is waning. Even if we do drop another day or two, there are multiple potential support zones looming close.
I like buying call vertical spreads for a cheap upside bet.
The Trade: Buy the Sep $155/$160 bull call spread for around $1.
The max loss is $1 and will be forfeited if SQ sits below $155 at expiration. The max gain is $4, but I’d consider taking profits or moving up your stop if you capture $1 of the potential profit.
Tech Stocks: Apple (AAPL)
Compared to the damage dealt to the rest of the sector, Apple has held up like a champ. Many spectators (me included) would have preferred it had fallen even further, but the bid beneath the surface since last month’s earnings has been relentless. The looming stock split has buying interest running hot, and I think it will keep a floor under the stock until the August 28 split date.
AAPL stock remains well above all major moving averages and really doesn’t have much by way of prior pivots until down at $400. If you’re willing to bet it remains above this level, then selling the following put spread makes sense.
The Trade: Enter the Sep $400/$395 bull put for around $1.00 credit.
The max reward is $1 and the max risk is $4.
For a free trial to the best trading community on the planet and Tyler’s current home, click here! At the time of this writing, Tyler held bullish options positions in SQ and AMD.