Virgin Galactic (NYSE:SPCE) shares are heating up again. The popular spaceflight stock jumped nearly 10% on Tuesday, even as the S&P 500 only closed higher by 0.50%. Growth stocks were popping on the session, so SPCE stock had a tailwind. Still, a double-digit gain is worthy of adoration.
This isn’t the first time this summer that Virgin shares are demanding traders’ attention. In the middle of May, shares rocketed from $15 to $30 in less than two weeks.
And I’m finding the technicals extremely well-behaved. Trending characteristics are developing, and support/resistance levels are being respected.
We’ll dive deeper into the price chart momentarily. But first, let’s take a fresh look at how the Street is feeling about growth stocks by analyzing the ARK Innovation exchange-traded fund (NYSEARCA:ARKK).
The ARKK Downtrend Is Dead
ARKK has quickly become my favorite proxy for growth stocks. Because of its increasing popularity and the accompanying explosion in trading volume, I’m not the only one who views it as a useful barometer. Its trend reflects risk appetite and investor optimism about the future.
When the masses are moving capital into high growth and momentum names, ARKK will be in a solid uptrend. The same applies when the tides turn, and traders turn pessimistic.
In case you missed it, ARKK is officially back in an uptrend. The fund had been plumbing the depths for months as value and cyclicals stole the show. But the pendulum appears to be swinging back to growth. Long-term interest rates have rolled over, and the Nasdaq has reclaimed a leadership role in the market. As a result, ARKK is now above all major moving averages for the first time since early February.
Here’s the bottom line. SPCE stock will have a much easier time rising, with the Ark Innovation ETF in bullish territory.
SPCE Stock Chart
Virgin Galactic should be the poster child for volatile stocks. It’s either rocketing to the moon, or it’s on its way to zero. And that makes it a stock that’s ridiculously challenging to buy and hold. So far, it’s been better to abandon ship when the trend sours to avoid the gut-wrenching givebacks.
The weekly time frame is as crazy as you’d expect. This year’s moves have been jaw-dropping. First, it was $22 to $62 in a single month. Then $62 to $14 in a single quarter. The latest swing has carried the price from $14 back up to $40 in six weeks.
It’s downright dizzying.
Fortunately, we have seen some fairly orderly movement on the daily chart. This is arguably the redeeming quality of SPCE stock. Since last month’s low, we’ve seen every dip bought and every breakout chased. The growth has been large enough and lasted long enough to reverse the trajectory of the 50-day moving average. Volume patterns along the way have been explosive with many accumulation days.
Tuesday’s breakout carried prices to the gap area formed by February’s earnings report. If we start to fill the gap, a push to $46 looks likely.
Bull Call Spreads
The sky-high volatility translates into really juicy options premiums. And that gives us plenty of choices in building a bullish trade. If you want a high probability of profit, consider naked puts or bull puts. For a more directional play, use call spreads to mitigate the cost. Here’s the structure I prefer:
The Trade: Buy the August $40/$50 bull call for $2.80.
The max loss is $280, and the max gain is $720.
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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