The S&P 500 officially closed at a new record on Thursday, and the Nasdaq is sure to follow. We’ve seen tech stocks quietly recover this month. And, the technicals for the sector and the broader Nasdaq Composite Index are definitely warming up. To celebrate buyers’ return, as well as try to bank some coin, we’re spotlighting three tech stocks to buy.
In scanning for the best trade ideas, I focused on breakout and retracement patterns. In addition, I wanted tickers with the wind at their back. Momentum on the index level has been sluggish – especially with the S&P 500. It appears the summer doldrums are upon us. Volatility is dead, and stocks await a catalyst to waken them. With that as the backdrop, I focused on picks that showed signs of life – relative strength, in other words.
That said, here are three tech-related plays that demand your attention:
We’ll follow the usual progression in our discussion below. Chart first; trade idea second.
Tech Stocks to Buy: Amazon (AMZN)
It’s pretty incredible how long Amazon has been dead money. The e-commerce behemoth first touched $3,200 last July, and despite a great deal of pushing and pulling, hasn’t budged since. The range has been long enough to neutralize all major moving averages. Even the 200-day moving average is pointing sideways.
And yet, I find this week’s awakening intriguing and potentially trade-worthy. Thursday’s rally pushed prices above short-term resistance and the 50-day moving average. Volume ticked higher to confirm an increase in buying interest. If the break sticks, we could see a run to the top end of the range near $3,500. Consider that the target.
For a stock as richly priced as AMZN and one whose strike prices are further apart, I like OTM call butterflies. This one will be a broken wing fly to reduce the cost further.
The Trade: Buy one August $3,400 call, sell two August $3,500 calls, and buy one $3,550 call.
This creates a 3,400/3,500/3,550 broken wing call butterfly for a net debit of around $23. Of course, if the trade structure is too complex, then long stock is always a simpler alternative.
Since Paypal carved out a double bottom to end its April-May correction, price action has been toeing the bullish line. The latest victory came yesterday when PYPL stock blasted through resistance and completed a recent high-base pattern. The 20-day and 50-day moving averages are also curling higher to confirm buyers’ dominance of the short-term and intermediate-term trends.
Consider $277 the next upside target. Beyond that, $300 becomes a genuine possibility.
Implied volatility is in the dumps at the lowest level of the past year. Since the payout for put spreads is so low, we’re going with a long premium play here.
The Trade: Buy the August $270/$280 bull call spread for $4.60.
Tech Stocks to Buy: Roblox (RBLX)
Roblox rounds out today’s selection of tech stocks to buy with a tempting bull retracement pattern. The pullback follows what was an epic breakout of its post-IPO range. I find the volume patterns particularly compelling. Buyers rushed in last month after the company’s first earnings report, and the stampede continued on the breakout. Participation during the retreat has been average by comparison.
So far, the 20-day moving average is holding as a new potential support zone. But even if we were to break it, the ceiling of the old range near $80 looms as the next potential floor.
Bull put spreads offer attractive returns if you’re looking for a high probability play.
The Trade: Sell the July $75/$70 bull put for 70 cents.
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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