Monday’s hopeful vaccine news from Pfizer (NYSE:PFE) was a shot in the arm for a broad swath of industries that have been sick ever since the novel coronavirus pandemic arrived. Some of them jumped more than 20% to start the week as capital flooded back into everything. From airlines and casinos to cruise lines and banks. Nothing was left out. Even left-for-dead energy stocks caught a bid. Some mid-week profit-taking is creating an attractive pullback in the lot of them. Let’s find the best stocks to buy on the dip.
In scanning for the top three picks, I focused on three different sectors for diversification purposes. Truth be told, the cohort of economy reopening plays tend to move together, but it’s still a good practice to spread our bets around. My confidence in these three stocks is driven in large part by the now beaming uptrends in place. Monday’s moonshot pulled all of their trends higher with increasing momentum. The volume influx didn’t hurt either.
That said, here are my favorite stocks to shop right now.
Let’s take a closer look at their charts and identify a smart options trade to capitalize.
Best Stocks to Buy on the Dip: Las Vegas Sands (LVS)
At its highs, shares of Las Vegas Sands were up 20% on Monday. And that was after having rallied six of the previous seven sessions. The gap higher launched LVS stock outside of its eight-month range, placing it well above the 200-day moving average. With the $53 resistance zone now cleared, I fully expect buyers to emerge to defend any retest. The old ceiling should become a new floor, in other words.
Volume patterns have been bullish since October’s earnings report. I count five accumulation days over the past month with hardly any signs of distribution.
Implied volatility is scraping the lower end of its one-year range at the 15th percentile, making long premium plays the way to go.
The Trade: Buy the Dec $55/$60 bull call spread for $2.00.
Delta Air Lines (DAL)
Airlines looked equally compelling this week. Monday’s surge saw DAL stock up 25% at its high for the day. The trend structure is virtually identical to LVS. Nine months of rangebound behavior has (hopefully) ended, and a new uptrend is beginning. Notably, the 200-day moving average was taken out in a big way with the monster gap.
The magnitude of the pop, coupled with the groundswell in participation, again leads me to believe that the mid-week selling is creating a dip worth buying.
At 13%, the implied volatility rank is low enough to once again point toward buying options as our play.
The Trade: Buy the Jan $35/$40 bull call spread for $1.80.
Lyft rounds out this trio of top stocks to buy with a dip that wasn’t even really a dip. While its predecessors suffered modest profit-taking throughout the week to pare Monday’s giant gains, LYFT stock has been treading water. A high base has formed, in other words. The fact that buyers have been able to keep the stock consolidating near its highs is a bullish omen.
While we may see a few days of backing and filling yet, the newfound strength in Lyft’s budding uptrend makes the next breakout a must-buy. For now, I’m eyeing the high of this week’s chop ($38.90) as a potential trigger point. The setup will improve, however, if we can get a few more sideways sessions. It will allow the stock to work off short-term overbought pressures further.
With earnings just passed, implied volatility has dropped to the basement. At the 11th percentile, buying options is preferable to selling them.
The Trade: Buy the Jan $35/$40 bull call spread for between $2.25 and $2.50. You can wait for the trigger over $38.90 if you want more confirmation.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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