3 Stocks to Buy On Their Latest Dip

stocks to buy - 3 Stocks to Buy On Their Latest Dip

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If you want a headline for Tuesday’s trading, it’s this: small-capitalization stocks get wrecked. There’s some hyperbole in it, to be sure, but you can’t deny the nasty relative weakness suffered by the Russell 2000 Index. Though the S&P 500 closed near unchanged on the session, RUT was down 2%. Despite the drubbing, the overall uptrend remains intact. And that’s a great place to seek out the best stocks to buy.

Large swaths of the market came into this week basking at record highs. Even many that weren’t at all-time highs, were near 52-week highs and had uptrends with strong momentum. In my experience, those circumstances provide the best dips to buy.

To find today’s candidates, I ran a simple scan looking for stocks exhibiting the above characteristics. Rather than focusing on a single sector, I went the diversified route and came up with a solar stock, a fresh IPO, and an online marketplace company that’s been red-hot since the global pandemic kicked-off.

Check them out.

  • Canadian Solar (NASDAQ:CSIQ)
  • Airbnb (NASDAQ:ABNB)
  • Etsy (NASDAQ:ETSY)

We’ll follow my galleries’ usual path with a quick look at the chart to build the bullish case and then a compelling options trade.

3 Stocks to Buy: Canadian Solar (CSIQ)

Canadian Solar (CSIQ) with bull retracement

Source: The thinkorswim® platform from TD Ameritrade

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Solar stocks have been on fire this year, and their momentum only increased after the presidential election. The Solar ETF (NYSEARCA:TAN) is up five-fold since its March low. The Street expects big things for the industry under a President Joe Biden administration.

Canadian Solar turned up as one of the better-looking setups in the space. It spent much of the fourth quarter building a trading range before finally breaking out in mid-December. Profit-taking struck this week, creating the first pullback opportunity we’ve seen since the launch. Given the increased volume and momentum seen during the last upswing, I’m betting this is a buyable dip.

Implied volatility is high enough to make bull put spreads interesting if you want a higher probability of profit.

The Trade: Sell the Feb $45/$40 bull put for $1.20 credit.

Airbnb (ABNB)

Airbnb (ABNB) stock chart with potential pullback buy setup

Source: The thinkorswim® platform from TD Ameritrade

2020 was the year that Airbnb finally came to market. Some will argue it’s overvalued given the hefty share price and market cap, but that’s hardly unique. It’s a zero interest rate world with stimulus as far as the eye can see. Just about every sector in the market looks expensive. Besides, I’m not pitching an investment but a trade.

With only three completed trading sessions, there’s not a lot to go off, but I like the price trajectory so far. We officially formed a higher pivot high by successfully breaching the IPO day’s high during the last upswing. The five-bar pullback that just developed now gives us the chance to build a higher pivot low.

If buyers emerge and push prices above $153, then bull trades have a green light.

The Trade: Buy the Feb $160/$170 bull call spread for around $3.

Etsy (ETSY)

Etsy (ETSY) stock chart with bull retracement

Source: The thinkorswim® platform from TD Ameritrade

Etsy rounds out our hat trick of stocks to buy with a picture-perfect bull retracement. Its uptrend this year has been a juggernaut delivering a ton of opportunity. What I love about the current pattern is it’s clean. We just saw a strong upswing to create a higher pivot high and show the trend is continuing. Now, we have a four-bar pullback to the rising 20-day moving average on relatively light volume.

Tuesday saw a small-bodied candle form to suggest the pullback was slowing and support was forming. This morning we’re seeing prices start to turn higher as buyers finally emerge to buy the dip.

I like bull call spreads for a low-cost upside bet.

The Trade: Buy the Feb $190/$200 bull call for $3.00

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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