Stocks closed out the week by rallying back to the top side of a tight consolidation zone. The inability of the S&P 500 to pull back to the 20-day moving average before buyers pounced says something about just how resilient the uptrend has become. The technicals demand favoring bullish trades in this week’s top stock trades edition.
The constructive nature of last week’s pause allowed dozens of quality patterns to develop beneath the surface. With scores of earnings reports scheduled over the next two weeks, many picks were disqualified due to the elevated uncertainty of buying ahead. Still, I was able to find three tempting targets that have momentum on their side and the wind at their backs.
One is a juiced-up copper stock that’s quickly become a favorite for traders looking for exposure to inflation. The second has played a leading role in the semiconductor supercycle. The final pick has been capitalizing on the booming real estate market.
We’ll follow the usual path by breaking down each price chart. Then I’ll share which options trade is catching my eye.
Top Stock Trades: Freeport-McMoRan (FCX)
The resurrection in copper prices has been front and center for those tracking the inflation trade. But buying copper directly requires playing in the futures market or settling on an illiquid ETF. Traders seeking a better option have warmed to Freeport-McMoRan, which derives the lion’s share of its profits from copper and has tracked the industrial metal closely for ages.
Last week’s earnings report came and went without adversely impacting FCX’s uptrend. The takeaway is obvious. FCX’s fundamentals support its massive run, and investors saw nothing in the numbers to give them pause.
The upside follow-through in price on Friday and this morning has FCX stock itching for its next breakout over $39 resistance.
The Trade: Buy the June $45/$50 bull call vertical for $1.30.
Nvidia (NVDA)
Nvidia has been a leader in the chip space for years, and its share price shows it. Given its meteoric rise, it should come as no surprise that NVDA finally took a breather by basing sideways for six months while earnings played catch-up. Those waiting for the inevitable awakening perked up this month when NVDA stock finally took out the topside of its range.
This wasn’t some retail-trader-driven breakout attempt, either. Volume exploded during the ramp, confirming that institutions were backing the push. The upside follow-through was powerful enough to add to the breakout’s legitimacy.
The retreat we’ve since seen creates a tempting buy-the-dip setup for those willing to bet more upside is in store. The 20-day moving average is coming in fast below and should help create support in this area. We’re also testing the old resistance zone near $590, which should shift to provide new support now that we’re above it.
If NVDA can take out $617.60, pull the trigger on this trade.
The Trade: Buy the June $620/$650 bull call vertical for around $13.
Top Stock Trades: Lowe’s (LOW)
The final of our top stock trades takes us to the real estate market. Anything related to home construction has been on fire so far in 2021. If you wanted into Lowe’s over the past six weeks, you’ve been forced to chase the advance. Until now. LOW stock is finally offering a low-risk entry point by pulling back to its rising 20-day moving average.
Given the momentum behind the previous advance, I’m willing to bet buyers will swarm to buy this dip. It’s not a matter of if, but when. Rather than trying to buy the low, I suggest waiting for confirmation that bulls have returned. This will occur when Lowe’s pivots and starts the next advance. For a trigger, consider using a break of Friday’s high ($201.89).
At the 34th percentile, implied volatility is high enough to make bull put spreads interesting.
The Trade: Sell the May $185/$180 bull put for around 60 cents.
On the date of publication, Tyler Craig held a LONG position in FCX.
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