Last week’s sucker punch to financials, energy, and basic materials didn’t happen in a vacuum. It rippled throughout the stock market, causing a great deal of shuffling. While value fell out of favor, growth stocks came roaring back to fill the void.
The dynamics that played out illustrate a phenomenon that has been a hallmark of this bull market: sector rotation.
Sector rotation, or the movement of capital from one sector to another, allows overbought areas to pull back or rest without derailing the broad market’s uptrend.
How does the S&P 500 stay aloft, even as leading sectors retreat? Other sectors pick up the slack. The money fleeing value last week found a new home in growth stocks.
If you think the trend continues, then here are three trade ideas to capitalize on.
Each one has shown strength in the past two trading sessions. What’s more, their price charts are breaking out. Let’s take a closer look.
3 Ways to Play Growth Stocks: Ark Innovation ETF (ARKK)
If you want a diversi
ARKK is an actively managed ETF that invests at least 65% of its assets in companiesit deems to be involved in “disruptive innovation.”
If it wasn’t obvious, there aren’t many value stocks that fall under the fund’s theme. As such, ARKK is chock full of growth-related names, many of which thrived in the wake of the pandemic.
The bear market that arrived in February taught shareholders anew that volatility and momentum slice both ways.
What most interests me is the bullish trend reversal that arrived this month. ARKK is now trending back above its 50-day moving average and looks clear for a run to $130.
The Trade: Sell the July $113/$108 bull put for 65 cents.
Tesla is attempting to push back into an uptrend with recent moves up. Prices are clearing a key horizontal resistance level at $633, as well as the falling 50-day moving average.
This is the first successful break of resistance since early April and is the best chance bulls have had to turn the trend.
The triangle pattern that preceded the recent run created a volatility compression that should aid the breakout bid.
Consider the consolidation a coiled spring that is now releasing its pent-up energy. This is the triangle resolution that chart watchers have been waiting for.
The Trade: Buy the Aug $680/$700 bull call vertical for $7.25.
Peloton is the final candidate for today’s growth stocks trio. I continue to be impressed by its resilience in the wake of last month’s poor earnings report and the news of its treadmill recall.
Apparently, all the sellers were washed out during May 5th’s epic capitulation day. We’ve seen nothing but constructive price action ever since.
Tuesday’s high-volume rally caught my eye and is the reason for Peloton’s mention. The jump allowed PTON to clear the top end of its recent range, potentially signaling a new upswing is upon us.
However, there is one hurdle that remains – the 200-day moving average. The doji candle shows the battle transpiring. If you want more confirmation before entering bullish trades, you could wait for a close above the 200-day.
Otherwise, swing away with the following idea.
The Trade: Sell the July $103/$98 bull put for 66 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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