Panic was in the air this week. The interest-rate hobgoblins came out of the closet to haunt investors everywhere. Well, not everywhere. Oil stocks cared not a whit for the drama. Nor did industrial stocks. In fact, both of these sectors were where traders went to hide. I’m intrigued by the buoyancy from the industrial sector and will shine a spotlight on three strong stocks to buy.
Equities flexing their muscles during times of turmoil are easy to see. Just sort your watchlist by percentage change. They’re the few darlings sitting in the green when everything else is red. From a charting perspective, outperformance appears when prices remain above support and key moving averages while everything else melts down.
Industrials score high marks on both fronts. The sector has stood tall this week, allowing its chart to stay above the rising 20-day moving average. Here are my three favorite setups in the space:
After a closer inspection of each chart, I’ll reveal an options trade you can use to bank profits.
Industrial Stocks: Caterpillar (CAT)
Let’s start with a logic chain. The underpinning of surging interest rates is inflation. Inflation pressures are rising because commodity prices are climbing. Commodity prices are climbing because global growth expectations are lifting. And do you know who thrives on global growth? Cyclical stocks like Caterpillar.
The past week of selling appears nothing more than a garden variety pullback for CAT stock. What’s more, the prior advance saw a sharp uptick in momentum and a quartet of accumulation days. With institutions heavily favoring the feline, the wind is at the back of buyers, and higher prices are more likely than lower ones.
The Trade: Buy the May $220/$230 bull call spread for $3.80.
You’re risking $3.80 to capture $6.20 potentially.
Deere is following in Caterpillar’s footsteps. Indeed, their price charts boast many similarities. DE stock’s last upswing had some serious firepower behind it, thanks to an impressive earnings report. Its top and bottom-line growth had buyers eagerly snatching up shares, and I can’t see them completely abandoning shares in light of a little interest rate scare.
Plus, for all its fury, the past week of selling delivered a textbook three candle retracement. The profit-taking was mild compared to the previous ascent. DE was up seven days in a row preceding the drop, so it arguably needed to cool.
Thursday saw a test of the rising 20-day moving average the ultimately succeeded. Buyers swooped in to maintain the integrity of the short-term trend. If you’re looking for dips to shop, this one belongs at the top of your list.
The Trade: Buy the June $340/$360 bull call for $8.50.
You’re risking $8.50 to capture $11.50 potentially.
Emerson Electric rounds out our trio of industrial stocks to buy. The market’s temper tantrum hasn’t affected the EMR chart one bit. In fact, while the S&P 500 was getting torched on Thursday, EMR was tagging a record high. The outperformance is again on full display this morning. While the broad market is sinking, EMR is up 1%.
Whatever is spooking stocks at large is having zero impact on investor appetite for Emerson. And that’s a fact that demands attention for strength seekers.
The typical volatility or past behavior of EMR’s price trend seems to lend itself to position trading over swing trading. The uptrend has been slow and steady. I like buying more time with a call spread to give the stock plenty of runway to continue ascending.
The Trade: Buy the June $90/$95 bull call for $2.
You’re risking $2 to capture $3 potentially.
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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