Stocks galloped into the holiday weekend, with the Nasdaq and tech sector continuing their leadership role. Small-caps were noticeably weak, making them the obvious area to avoid for this week’s edition of our top stock trades. As is often the case, we’re pursuing the names with relative strength or a quality chart pattern.
On the intermarket analysis front, one catalyst aiding the resurrection in growth stocks is the bearish reversal in interest rates.
The 10-year yield has been rolling over, with the decline accelerating Monday morning. The shift is causing considerable rotation out of banks and value stocks and into growth-related areas like tech.
A continuation of this nascent trend should provide a tailwind for today’s three picks. They are:
Let’s take a closer look at each chart.
Top Stock Trades of the Week: Canadian Solar (CSIQ)
If you haven’t scanned solar stocks in a while, now’s a perfect time to take a fresh look. They’ve benefited greatly over the past month from traders warming to growth stocks. There’s no shortage of tempting targets, but Canadian Solar is my favorite because of its textbook bull retracement pattern.
Last week, CSIQ launched to a two-month high. Volume exploded as buyers rushed in. Those who missed the quick gains are now getting a second chance. Price has retreated from $48 to $42 and is closing in on the old resistance zone. If the principle of polarity holds, the old ceiling near $41 will become support.
For confirmation, try waiting for a break above the prior day’s high. For now, that’s $43.55. Implied volatility is high enough to make bull put spreads attractive.
The Trade: Sell the August $35/$30 bull put for 55 cents
Consider it a bet that CSIQ will remain north of $35 for the next six weeks.
Amazon has spent the past year going nowhere. But don’t think that the rest wasn’t deserved because it was. In the six months between March 2020 and September, AMZN stock more than doubled, becoming quite overbought in the process. The sideways movement we’ve seen since has allowed the e-commerce titan to digest gains and build a base for its next leg higher.
Along the way, $3,500 has proven formidable resistance and is the obvious line in the sand that spectators have been waiting to see taken out. This morning, their wait is over.
AMZN is ripping 3% and, at the time of this writing, has powered prices up to $3,620. The magnitude of the follow-through so far is providing sufficient confirmation for new bullish entries.
The Trade: Buy the August $3,650/$3,700 bull call spread for $21.
Top Stock Trades of the Week: Salesforce.com (CRM)
Salesforce.com is the final of our top stock trades this week. Its price behavior was actually quite sloppy over the first five months of the year, but a consistent uptrend has started to develop. May’s earnings gap catapulted CRM back above all its major moving averages. Since then, every dip has been bought, and the 20-day moving average has been a gathering ground for buyers.
A high base pattern formed over the past three weeks just under critical resistance at $248. Friday’s rally jammed prices to the doorstep of a breakout, and we’re seeing the ceiling finally give way in early morning trading Monday. There isn’t any other resistance until $266, so the stock has a straight shot higher if bulls press their advantage here.
Implied volatility sits at the 16th percentile of its one-year range, which makes long premium plays cheap.
The Trade: Buy the September $250/$270 call vertical for $7.70.
On the date of publication, Tyler Craig held LONG positions in CSIQ. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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