After abandoning stocks for a single session on Wednesday, buyers returned in force on Thursday. The quick turnaround is simply the latest in a long line of evidence pointing toward the bulls’ dominance. To celebrate their continued reign and the potential for more gains as we move ever closer to year-end, today’s gallery highlights three of the best breakout stocks to buy.
We’re spreading our picks across three different sectors to offer variety and diversification. That way, if one area cools, it won’t upend the entire pitch. In scanning for the ideal patterns, I focused on strong uptrends that were testing resistance zones. One more push, and we should see some nice upside acceleration just in time for Christmas.
Of course, if they don’t take out the ceiling, then all bets are off. This is a quintessential “if-then” type of trade, predicated on buyers pressing their advantage and catapulting prices above a zone that has thus far kept a lid on the trend.
Without further ado, here are the three companies that made the cut.
One has flourished during the pandemic. The other two breakout stocks are flying high on hopes of more stimulus and an economic rebound. Let’s take a closer look.
Best Breakout Stocks to Buy: Pinterest (PINS)
Pinterest’s trend is one for the history books. We’ve seen the share price rise seven-fold since March’s low, from $10 to $70. It’s utterly incredible. The rapid pace of growth is definitely unsustainable, but that doesn’t mean you should bet on an imminent top. Going with the trend is far easier. Remember, just because we can’t continue at the same rate doesn’t mean prices can’t still rise.
Over the past two weeks, a clear high base pattern has formed. Wednesday’s breakout attempt failed due to broader market weakness, but buyers swarmed yesterday to form a bullish engulfing pattern. As soon as we take out Thursday’s high of $71.91, long trades have the green light.
The implied volatility rank of 18% combines with a strong uptrend to create an attractive bull call spread opportunity.
The Trade: Buy the Feb $75/$85 call vertical for around $3.20.
MGM Resorts (MGM)
Casinos turned to ghost towns earlier this month, but Wall Street is betting crowds will return. So says the price action in everyone from MGM and Wynn (NASDAQ:WYNN) to Las Vegas Sands (NYSE:LVS) and Boyd Gaming (NYSE:BYD). Of the four, I think MGM has the prettiest pattern. However, WYNN is a close second.
I’m particularly impressed by the relative strength this week. While some stocks got torched on Wednesday, MGM closed near unchanged. Then, on Thursday, it scored a booming engulfing candle and gained 3.31% on the session. Clearing the top of the high base could spark a run toward $35.
The theme of low implied volatility continues with MGM’s rank of 11%. Its low share price makes long calls an interesting trade if you think we squeeze higher into year-end.
The Trade: Buy the Feb $31 call for around $3.05.
Chevron rounds out our trio of the best breakout stocks to buy as one of the better looking large caps in the sector. Oil prices popped to a fresh seven-month high this week, and it’s carrying energy stocks higher alongside it. Not that they needed any help, mind you. The resurgence in small-caps on the heels of the recent novel coronavirus vaccine already had bulls falling all over themselves to finally rotate back into an area that they’ve hated for months.
CVX stock is building a mini-symmetrical triangle and actually tried to break out on Thursday with high volume to boot. I think it goes to $100 in a hurry. To capitalize, buy bull calls.
The Trade: Buy the Feb $95/$100 bull call for $2.00.
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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