Wednesday’s stock slide was the largest decline we’ve seen in awhile. What was even more rare, however, was the speed in which fear entered the market. The CBOE Volatility Index spiked 61.64%, its third-largest single session climb in history. The fact that the rise came on a day where the S&P 500 only declined 2.4% is fascinating. To capitalize on the market dip, I’m sharing my three favorite stocks to buy here.
Despite the one-day drubbing, every major index I follow is still in a healthy uptrend. No major support zones were breached, so I continue to give bulls the benefit of the doubt. The silver lining of Wednesday’s whack is the same of any market rout. It creates lower-risk entries for stocks that had become overbought and overheated.
In selecting today’s trio of tempting targets, I focused on charts with relative strength and intact uptrends. You’ll find them below.
Let’s take a closer look at each chart.
Stocks to Buy After Wednesday’s Whack: Exxon Mobil (XOM)
If you missed the great ascent in energy stocks that kicked-off 2021, your second chance has arrived. We saw a mad rush into Exxon Mobil over the first eight trading sessions of the year. Momentum and volume surged in support of buyers. It was the type of participation that I believe will stick around. As a result, the current retracement is likely to get gobbled up.
To capitalize, consider selling the March $40 naked puts. It’s a bet that XOM stock will stay above $40 for the next fifty days.
The Trade: Sell the March $40 put for $1.20.
The original $120 received is the max gain. If price the sits below $40 at expiration, you will be obligated to buy 100 shares at $38.80.
Freeport McMoRan (FCX)
Freeport McMoran has been a top choice for investors betting on the global economy returning to full health. It has tracked a rousing recovery in copper prices, and has one of the best trends in its sector. What’s more, the past four quarters in earnings have improved nicely. To wit: It has gone from losing 34 cents per share to a profit of 3 cents, 22 cents and most recently, 48 cents. It’s a beautiful turnaround and shows the stock’s price appreciation has sound fundamental underpinnings.
This week’s drop carried FCX stock right into its rising 50-day moving average, as well as an old resistance zone. Both are now logical areas for buyers to emerge and new support to form. I also like how the company’s earnings are now in the rearview mirror.
Its cheap price tag works to the advantage of naked puts.
The Trade: Sell the March $21 naked put for 43 cents.
For my final pick of stocks to buy, I’m going with Netflix. Last week’s earnings report and subsequent 16% overnight jump left many traders behind. But the media giant has heard their complaints and saw fit to give them a second chance of sorts. With the past four days of selling, NFLX stock has all but filled its earnings gap, returning to its pre-jump prices.
Spectators can now enter without feeling like they’re chasing. Wednesday’s swoon reeked of desperation selling and could signal short-term capitulation. It also bumped up the implied volatility for downside puts which increases the payday for strategies like a bull put spread. Couple that with the heaps of potential support zones beneath, and I think it’s a trade worth playing.
The Trade: Sell the March $460/$455 bull put for 80 cents.
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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