Selling finally struck equities this week. But I don’t think it will kill the uptrend. Consider it a mere shaking of the trees to scare the children.
Some areas of the market were getting frothy. For instance, the Nasdaq was up ten days in a row. All you had to do was show up with a pulse, and mother market doled out goodies. Such easy money is never sustainable. But there’s a silver lining to Wednesday’s whack. It created a compelling pullback pattern, and today I’m revealing my top three stocks to buy into the dip.
Finding these tasty trades didn’t require much work. A glance at my carefully curated watchlist of the most liquid and popular stocks found uptrends galore. And virtually all of them retreated during yesterday’s rug-pull.
I focused on those that saw increasing momentum during the last advance because it signals bulls are growing in power. It also makes it that much more likely that the current pullback gets bought.
Here are the three tickers that fit the bill.
Let’s take a closer look at their powerful trends. Then I’ll reveal my preferred options trade for each.
Stocks to Buy: Advanced Micro Devices (AMD)
Chip stocks have been a growth engine for the tech sector, and perhaps none has been more compelling than Advanced Micro Devices. It spent much of the past two months building momentum beneath the surface while digesting recent gains. On Nov. 30, the buying pressure finally came to a head, and AMD blasted through major resistance. Since then we’ve seen nothing but bullish action.
Momentum and volume both increased on the breakout, suggesting it’s a valid push. That makes this week’s dip a definite buy. All bullish options strategies are in the running, but if you’re looking for a higher probability play, then bull puts are the way to go.
The Trade: Sell the January $80/$75 bull put for around 80 cents.
Consider it a bet that AMD will sit above $80 at expiration.
It took a few months for Lemonade to find its footing following July’s initial public offering. But now that a base is in place, prices have been flying.
The two-bar retreat on Tuesday and Wednesday followed a massive high volume breakout. It’s just the type of pullback that I like when looking at stocks to buy. You had to act fast to acquire shares near the pivot low, but even with Thursday’s 14% pop, I still think more upside is in store.
Admittedly, this is a higher risk play, if for no other reason than its incredible volatility. The consistency of its current uptrend makes me overlook the outsized moves. Besides, so far, the lion’s share of the volatility is transpiring to the upside.
To lower the trade cost and mitigate the volatility risk, I prefer spreads over buying calls outright.
The Trade: Buy the January $100/$110 bull call spread for $3.
You’re risking $3 to capture $7 if prices sit above $110 at expiration.
The final pick for today’s stocks to buy is Boeing. Its share price has come a long way since plumbing the depths in March. November flipped a switch for the airline industry, and we’ve seen nothing but bullish action since. Bulls have gobbled up every pullback and each breakout has seen powerful follow-through. What’s more, we just pushed above the June peak, paving the way for a run to $300.
It’s still a fair distance away, but there’s virtually no resistance between here and there. With the runway cleared, I like bull call spreads.
The Trade: Buy the February $250/$260 bull call spread for around $3.
You’re risking $3 to potentially capture $7 if Boeing rises past $260 by expiration.
On the date of publication, Tyler Craig held LONG positions in AMD
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