Don’t let the S&P 500’s sleepy Monday session fool you. There’s some big-league movement going on beneath the surface – particularly in some of the areas that have been lagging. There’s always the chance that it’s a ruse, but I’d be lying if I said I didn’t love the newfound momentum. I found three distinct themes to Monday’s strength, making the tickers below easy picks for this week’s top stock trades.
Rather than go the stock route, today’s gallery features three ETFs that provide a diversified path to profits. Though the S&P 500 is hovering near unchanged, these funds are up 4.55%, 3.8%, and 1.33%, respectively.
But it’s not just the single session’s performance that is catching my eye. Their price charts are either breaking above or on the verge of breaking above major resistance zones. Entering now could mean getting in on the ground level of their next advances.
That’s the pitch; here’s the reveal.
- Biotech ETF (NYSEARCA:XBI)
- iShares Russell 2000 ETF (NYSEARCA:IWM)
- Alternative Harvest ETF (NYSEARCA:MJ)
Let’s take a closer look at each chart and build out an options trade to profit.
Stock Trades for the Week: Biotech ETF (XBI)
The drawdown in biotech stocks since February’s peak has been nasty. From peak to trough, XBI tumbled 33%, breaching every major moving average along the way. It’s not an overstatement to say that Monday’s session is a game-changer. The 4.5% jump is the strongest breakout attempt we’ve seen since the downtrend began three months ago. We’re blasting above a trifecta of resistance zones, including horizontal resistance, the descending trendline, and the 50-day moving average. And with high volume to boot.
This is either a fake-out for the ages or a fantastic buying signal. I’m willing to bet it’s the latter. Implied volatility is still languishing at the lower end of its one-year range and makes long premium plays the way to go.
The Trade: Buy the August $133/$140 bull call vertical for $2.85.
iShares Russell 2000 ETF (IWM)
The long-awaited breakout in the Russell 2000 may finally be upon us. For months, the little guys have been stuck in a trading range between $230 and $212. We’ve seen a few attempts to push higher along the way, but each ultimately failed. Monday’s 1.4% rally is jamming IWM right into the top end of the range. Time will tell if this bid succeeds. If you’re going to play it, then now is the time to prep a trade. We’re a whisker away from the trigger.
Meanwhile, implied volatility is in the tank at the lowest levels of the year. That makes buying calls or call verticals a smart choice. They’re priced cheap, which helps keep the risk minimal.
The Trade: Buy the August $230/$240 call vertical for $4.60.
Stock Trades for the Week: Alternative Harvest ETF (MJ)
The final theme of this week’s top stock trades takes us to the marijuana fields with MJ. When growth stocks fell out of favor, it torpedoed pot stocks, and they’ve never really found their footing until now. The trend reversal is similar to what’s transpiring in the biotech ETF. Over the past two weeks, MJ has run back above its descending trendline, a prior pivot high, and both the 20-day and 50-day moving averages.
Instead of suffering a deep retracement after the run, prices have built a high base pattern. Corrections like this suggest sellers are embracing the higher prices instead of rejecting them. And, it signals there’s more upside. If you want more confirmation, then wait for a push above $22 before pulling the trigger.
That said, I think Monday’s rip was evidence enough that MJ wants higher. Given its low share price and modest options premiums, I like covered calls.
The Trade: Buy shares of MJ and sell one July $24 call option for every 100 shares purchased.
On the date of publication, Tyler Craig held LONG positions in XBI, IWM, and MJ. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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