Turnaround Tuesday flexed its muscles this week. The reversal was particularly impressive in the Nasdaq, which slid as much as 3% yesterday morning. Just when it looked as if all was lost and the uptrend was officially dead, buyers came to the rescue — all but erasing the losses. By day’s end, chart watchers had one of the largest bullish reversal candles in months to feast their eyes on. The bottom, it appears, could be in for tech stocks.
Of course, there are no guarantees, but Tuesday seemed like an inflection point that wrung out the remaining weak hands. With the nervous-nellies now gone, today’s stocks can get back to the business of building their uptrends. Speaking of uptrends, they all have glorious long-term ascents. Dip buyers have been rewarded for ages. It’s the type of history that encourages trade ideas like today, if for no other reason than they’ve been so lucrative in the past.
That’s the pitch. Here are the picks.
After building the case on their price charts, I’ll share a carefully crafted options trade for each.
Tech Stocks to Buy After Turnaround Tuesday: Microsoft (MSFT)
Microsoft killed it on their last earnings announcement, and the Street rewarded its share price with a new all-time high. Because of the relentless buying, a post-earnings setup never really developed. You either chased or were left behind.
The past two days of liquidation are creating one of the best buy the dip patterns we’ve seen in months. It was preceded by an upswing with increasing momentum and returned prices right to a major support zone. The $227 zone was significant resistance on the way up, and now it’s acting as a new floor. Yesterday’s downdraft also stopped right at the rising 50-day moving average.
At the 7th percentile, implied volatility is signaling options are dirt cheap here. To capitalize, I like purchasing call vertical spreads.
The Trade: Buy the April $230/$240 bull call spread for around $4.30.
Semiconductors have outperformed the broader tech sector, so you better believe I’m including one of them in today’s list. There’s no shortage of attractive pullbacks in the chip space, but Micron might be one of my favorites. Here’s why.
First, while the Nasdaq cracked its 50-day moving average, Micron only tested its 20-day. And it held.
Second, volume patterns have been extremely bullish this month. Accumulation days continue to crop up, showing an ongoing buying campaign by the big boys.
Third, the size of Tuesday’s reversal was huge. Unlike most tech stocks, which eked out small losses, MU stock rose well into the green.
The Trade: Buy the May $90/$95 bull call for $1.85.
PayPal’s flight path has been similar to Microsoft’s. Shares of the fintech company exploded after the Feb. 3 earnings report, which required would-be buyers to chase it. Fortunately, however, patience is about to pay. PYPL stock just carved out a five-bar pullback, ending with a stellar bullish reversal candle. Yesterday’s rebound arrived just in time. Prices were testing old resistance and the rising 50-day moving average.
The turnaround allowed its long-term uptrend to remain intact. This is as good an entry point as any. The risk if we rollover is low, and the reward if we return to the old high near $309 is high.
Due to the low implied volatility, I’m continuing the theme of bull call vertical ideas.
The Trade: Buy the April $270/$280 bull call for $3.65.
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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