I’ve seen many bull markets in my day, but 2020 ranks among the best, especially right now. The small-cap eruption over the past two months has made turning a profit incredibly easy for trend followers. Truly, a rising tide has lifted all boats. With Christmas fast approaching and a dearth of negative headlines, I see no reason why the trend won’t continue.
As a daily chart watcher, I’ve been impressed by the growing number of clean patterns heading into year’s end. In a less generous market, swing traders have to scavenge and hunt for tasty setups. But these days I’m stumbling on them everywhere. One day the easy money will end. For now, I suggest jumping on the bull train and enjoying it while it lasts.
Here are three clean breakout stocks to trade as we head into a holiday-shortened week.
Let’s take a closer look at the chart and build out an options trade to profit.
3 Breakout Stocks To Buy Ahead Of Christmas: Seaworld (SEAS)
After March’s market massacre, Seaworld shares have been on the road to recovery. Though we still have a ways to go before retaking February’s high, you have to be impressed by the consistent upward march over the past nine months. Price action in the wake of November’s positive vaccine news has been particularly constructive, as we’ve trended higher above the rising 20-day moving average.
Over the past two weeks, a beautiful high base pattern has formed, and Thursday’s rally pushed prices to the brink of an upside breakout. An increase in volume would help confirm bulls are buying into the break.
Implied volatility has descended to the 9th percentile, suggesting options are cheap and ripe for purchase.
The Trade: Buy the Feb. $30/$35 bull call spread for $1.85.
Shake Shack (SHAK)
Shake Shack gained 6% Thursday on heavy volume. The accumulation day signaled a breakout of its recent high base pattern, setting the stage for a run up to $100 and beyond. Its record high of $105.84 was notched in 2019 and will be a magnet for prices moving into 2021.
Impressively, SHAK stock has now gained 200% from the March low. It’s a mouth-watering stat speaking to just how meteoric the rise has been for restaurants and other economically-sensitive stocks.
With its trend pointing higher across all time frames and every major moving average climbing alongside, the odds favor follow-through for yesterday’s breakout. The cheap options theme continues with SHAK boasting an implied volatility rank of 12%. Bull calls once again are my strategy of choice.
The Trade: Buy the Feb. $90/$100 bull call spread for $4.
Spotify (SPOT)
Spotify rounds out today’s trio of breakout stocks with a slightly different setup. Its breakout came earlier in the month, and we now have a bull retracement pattern beckoning.
Momentum surged in SPOT during the early-December break of major resistance at $300. Pullbacks following powerful moves like that have a strong tendency of being bought.
Picture it as a second chance of sorts for those who missed the initial breakout. Thursday’s rally climbed above the prior day’s high, signaling the potential beginning of the next advance. And that makes now the perfect time to deploy new bullish plays.
Unlike its predecessors, SPOT stock has higher implied volatility and thus more expensive options. That opens the door to a higher probability trade such as a bull put spread.
The Trade: Sell the Jan. $280/$270 bull put spread for $1.15.
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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