The gains in the S&P 500 have been above-average so far this year. Halfway through 2020, the go-to benchmark for equity performance has gained 13%. However, as great as the pace has been, it pales in comparison to the profits showering down on financial stocks. The financial sector (NYSEARCA:XLF) is up 30%, which puts it on pace for a blistering 60% annual gain. In sifting through the sector for potential stocks to buy, I came across three related names popping on Wednesday.
Credit card companies have taken full advantage of the reopening theme. Consumers are finally venturing out and spending in a big way, which boosts the profitability of the names we’ll highlight today. The fact that they all reside in a sector that is very much in favor right now is simply icing on the cake.
That said, here are my top three financial stocks to buy this week:
Let’s take a stroll through each chart and build out a way to profit using options.
Financial Stocks to Buy: American Express (AXP)
American Express jumped to a fresh record high on Tuesday, and we’re seeing modest follow-through today. Its price trend has been consistent with all dips bought, and breakouts chased. The 50-day and 20-day moving average have acted as support along the way, confirming buyers are willing to defend their turf when tested.
Over the past two weeks, three accumulation days have cropped up and further validate that bulls are in full control. Suffice it to say, the price chart is very much giving would-be purchasers the green light.
The implied volatility rank sits at the 3rd percentile, so long premium plays can be entered on the cheap. I like bull call verticals here.
The Trade: Buy the July $165/$175 call vertical for $3.35.
You’re risking $3.35 to capture $6.65 potentially.
Visa’s gains haven’t been as meteoric as AXP, but its trend has still delivered multiple trading opportunities. Last month we saw a double test of the rising 50-day moving average. Since then, prices have stabilized, and we finally saw an upside breakout attempt strike today. As vigorous as the initial bid was, the stock ultimately gave back most of the gains into the close.
While it’s not the type of follow-through that inspires confidence, it does give those of us who missed the resistance breach a second chance to buy. I suggest using a trigger of $230 to make sure the stock is moving past the ceiling again. The next pivot at $237.50 should be your first target.
Since the low volatility theme continues with V stock at the 2nd percentile of its one-year range, I suggest bull call spreads.
The Trade: Buy the July $230/$240 bull call for $3.80.
You’re risking $3.80 to capture $6.20 potentially.
Financial Stocks to Buy: MasterCard (MA)
MasterCard rounds out our list of financial stocks to buy. It’s been the messiest of the bunch this year, but I like how its latest bottoming pattern is shaping up. A higher pivot low formed with today’s rally and confirms demand is building beneath the surface. At the same time, the 50-day moving average overhead provides an easy level to build a breakout trade around.
If MA stock can push above $373.75, then the daily trend will officially turn higher and set the stage for a return to $400.
To capitalize, consider the following spread idea.
The Trade: Buy the July $380/$400 bull call for around $6.
You’re risking $6 to capture $14 potentially.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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