While small-caps are a few days away from topping off their best month in history, tech stocks remain uninspiring. Sure, the Nasdaq Composite is up on in November. But its 10% rise pales in comparison to the glorious 19% gain captured by the Russell 2000 Index. I suspect, however, that the recent bout of weakness in the land of technology will prove short-lived. It’s bound to play catch-up to the rest of the market into year-end, and that makes tech a perfect place to shop for stocks to buy.
For nearly two weeks, the Nasdaq ETF has been treading water. The relative weakness has been stark, but there’s no denying the base that’s formed is still constructive. Tuesday’s 1.31% rally places the fund on the cusp of an upside breakout. When it happens, we could see some powerful rotation back into tech stocks.
So, to prepare for that eventuality, I’ve scoured the sector and found trade setups in the following three stocks. They are:
Each offers a compelling chart worth building positions around. And with all of that in mind, let’s take a closer look.
Tech Stocks to Buy: Apple (AAPL)
There’s no need to mince words: Apple has fallen out of favor in a big way. In fairness to the tech titan, it was a shining star through the majority of 2020, so perhaps a rest was due. Nonetheless, shareholders are justified in complaining about the recent lackluster performance. At $116 per share, AAPL stock is at a price it first touched on Aug. 19 — roughly three-and-a-half months ago.
Not only has it underperformed small caps and other recent big winners, but it’s also underperformed the tech sector itself. That said, I think money will find itself back into Apple as we approach Christmas and the holiday shopping season. It is the only contrarian play of this trio, but if history has proven anything, it’s that investors never leave AAPL stock alone for long.
Implied volatility is dirt cheap at the 17th percentile, and that makes bull call spreads attractive.
The Trade: Buy the Jan. $120/$125 bull call for $1.55.
Alphabet (GOOGL, GOOG)
Alphabet’s recent performance stands in stark contrast to Apple’s weak ways. While the latter has been chopping well-below its peak, the former has been consolidating right at its high. That said, stocks that ramp to new highs and then tread water for a few weeks are prime breakout candidates. And tfhe consolidation has allowed Google to work off any overbought pressures, thus setting the stage for a more sustainable advance.
With the 20-day moving average now caught up and the tech sector potentially poised for money to rotate back into it, I think a breakout is imminent. In turn, I’m eyeing $1,900 as the first upside target.
To combat the rich price tag of GOOGL stock, we’ll use a low-cost vertical spread. The current low implied volatility levels work to our advantage with this strategy.
The Trade: Buy the Jan. $1800/$1830 bull call spread for around $11.60.
You can enter now, or wait for a breach of $1800 to signal the breakout has arrived.
Tech Stocks to Buy: Texas Instruments (TXN)
The final candidate for this group of stocks to buy comes from the semiconductor industry, which has been one of the growth engines behind the Nasdaq’s powerful rise this year. While the rest of the sector lagged over the past month, TXN stock carved out an ascending triangle just under its record high.
We saw bullish volume patterns during the formation, which confirms buyers still hold the upper hand. Tuesday’s rally ended with a high volume hammer candle that points toward an imminent breakout. The low implied volatility theme continues with TXN stock, once again making long call verticals my play of choice.
The Trade: Buy the Jan. $160/$170 bull call for $3.42.
On the date of publication, Tyler Craig held a LONG position in AAPL.
For a free trial to the best trading community on the planet and Tyler’s current home, click here!