My morning scanning revealed three breakout stocks that are worth pursuing.
Bulls couldn’t have asked for a stronger snapback to the recent selloff. Friday’s 1% gain in the S&P 500 is launching prices to a fresh record and acts as a stark reminder of just how powerful the uptrend has become.
The appeal of a breakout trade is simple. When prices push through a previously impenetrable ceiling, it signals a powerful change in character.
Resistance is an area where supply overwhelms demand. I picture bears unloading their wares on each push into the ceiling. When we breakout, it indicates that bears have essentially sold through their inventory.
Chart watchers get excited when prices breach ceilings and usually enter the market, which adds further buying pressure to the breakout.
That’s the theory. Here are the three picks:
Let’s take a closer look at each chart. Then, as always, I’ll outline my preferred options trade to capitalize.
3 Breakout Stocks to Buy: Coinbase (COIN)
Right or wrong, the Street seems to be using COIN stock as a proxy for bitcoin. While bitcoin hasn’t yet recovered from its recent beatdown, the fact that it’s at least treading water is helping bring some optimism into Coinbase’s price chart.
Indeed, this is the first time I’ve been interested in anything bullish on COIN since its mid-April IPO.
The breakout on June 28 is really what turned the tide for Coinbase shares. Since then, we’ve seen a gradual uptrend take root.
The consistency has been sufficient to turn the 20-day moving average higher. And, with Friday’s 4% pop, COIN is now above its 50-day moving average.
Volume patterns are resoundingly bullish as well. Accumulation days are multiplying as evidence of institutions entering the fray. I like bull puts, and bull call spreads here, but I am going with the former to offer a more directional bet.
The Trade: Buy the Aug $260/$280 bull call for $6.70.
The max risk is $6.70, and the max reward is $13.30.
Snowflake was one of the best performers on my watchlist in midday trading last week, with a 7.25% gain. The jump occurred on above-average volume, which confirmed the validity of the breakout.
Resistance near $255 halted the previous two rallies but proved unable to stem today’s buying tide. Previous price action reveals a lack of ceilings until $280, so consider that your first upside target.
I like $300 as the second target.
Given the firepower behind this breakout, I’m once again favoring call vertical spreads.
The Trade: Buy the Aug $270/$290 bull call for $6.60.
The max risk is $6.60, and the max reward is $13.40.
Breakout Stocks to Buy: Disney (DIS)
Mickey Mouse is making an appearance as the final pick for our breakout stocks to buy. DIS stock hasn’t provided a bullish entry point since March, so this setup has been a long time coming.
I love how fast Disney shares fired back from Thursday’s down open. Friday’s follow-through is jamming prices directly into the 50-day moving average and the descending trendline that has defined its downtrend for months.
While there’s always the chance that this breakout attempt follows in the footsteps of its predecessors, the strength of the past two candles suggests otherwise. If you want to wait for confirmation before pulling the trigger, then use a break of $178.
I’m open to just about any bullish-leaning trade here, but let’s keep it consistent and go with another call spread.
The Trade: Buy the Aug $180/$190 call vertical for $2.90
The max risk is $2.90, and the max reward is $7.10.
On the date of publication, Tyler Craig held LONG COIN and DIS positions. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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