Wednesday morning’s selloff in stocks was a microcosm of what we’ve seen over the past few months. Prices slipped, bulls ran scared and then thirty minutes later, buyers returned, and stocks quickly climbed back to positive territory. Even with the S&P 500 up seven days in a row, bears cannot depress prices for more than an hour. With such a benevolent backdrop, it’s no wonder breakout stocks and other bullish patterns have performed so well.
If you’re on the lookout for fresh trade ideas, I have three tickers worth your attention. While the broader market is pushing into overbought territory, these picks still offer low-risk entries. Rather than focus on a single sector, I found a diversified set of selections to increase the odds of at least one generating significant gains.
That said, here are three breakout stocks worth pursuing.
Let’s break down their recent price action and build out an options trade to profit.
Breakout Stocks to Buy: Snowflake (SNOW)
Momentum traders have taken to Snowflake ever since the technology company’s IPO last September. Its outsized volatility and high growth potential make it an obvious target. December’s correction reversed its uptrend, but recent price action shows a constructive bottom forming and provides the potential for a new uptrend to take root.
On Feb. 2, SNOW stock saw a large rally on heavy volume, which pulled prices above the 20-day moving average. Since then, a clean base has formed right at the 50-day moving average and a resistance zone at $325. A push past this area will complete the bottoming pattern and signal the beginning of a new uptrend.
Buying shares outright on a break over $325 works for those willing to acquire shares. For a cheaper, more leveraged play, try this call spread.
The Trade: Buy the May $340/$370 bull call for around $8.
Warner Music Group (WMG)
Warner Music Group zipped higher after last week’s earnings report, even touching a new record high intraday. In the six trading sessions since WMG stock has consolidated in the upper half of that day’s candle range. I find its ability to hold onto the gains impressive. Better yet, the pause has allowed the stock to digest gains and set the stage for its next upswing.
The past two months have seen multiple rally attempts rebuffed near $39.50. But the more times it gets tested, the weaker the ceiling becomes. If the bid beneath the surface continues, it’s just a matter of time until WMG breaks out. I prefer to prepare and build out trade ideas now rather than chase the stock after the fact.
You could purchase shares on a break above the $39.61 peak or buy the following call spread.
The Trade: Buy the April $40/$45 call vertical for around $1.75.
Berkshire Hathaway (BRK.B)
Reopening hopes for the economy have combined with a steepening yield curve to light a fire under the financial sector. Many banks have climbed to new records, and Berkshire Hathaway is one of the best looking.
It actually broke out on Tuesday, ending a three-month ascending triangle pattern. With all its major moving averages pointing higher, dips should continue to be shallow when they develop. Because of its slow and steady nature, BRK.B has historically been a better stock for position trades or cash flow strategies. As far as an upside target goes, I think $250 is worth shooting for, but it will take some time to get there.
As a result, I think using June options is preferable to March.
The Trade: Buy the June $240/$250 bull call for $5.00.
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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