Do you know who has been riding the pine while the tech sector has been shooting the lights out? Industrial stocks. Ever since their glorious start to 2021 faded in early May, these economically sensitive companies have been treading water.
The rest was well-deserved, sure, but going sideways isn’t near as interesting as going up. For those waiting for their reawakening, I have a message of hope. The Senate just passed a $1 trillion infrastructure bill, and it’s bringing fresh buyers into industrial stocks.
With the sector breaking through critical short-term resistance zones, now is the time to revisit trading ideas. While there’s always a chance that the breakout bid fails, I’m willing to bet that’s the least likely outcome. The market backdrop remains supportive of higher prices. Besides, breakouts have been buys all year long.
I scanned the sector and found three interesting opportunities for new trades:
Let’s take a closer look at each chart and map out a path to profits.
Industrial Stocks to Buy Now: Industrial Sector (XLI)
The low-hanging fruit with a theme-based trade like this is to keep it simple and buy the entire basket of industrial stocks via a broad-based exchange-traded fund like XLI. It’s the most liquid fund available, with more than 10 million shares traded every day. The elevated volume translates into liquid options with tight bid-ask spreads.
With prices trimming sideways for the past three months, the 50-day and 200-day moving averages are flat as a pancake. However, with the past two days of rallying, XLI has risen to a two-month high, taking out $104 resistance in the process. With the ceiling finally felled, a return to its 2021 high ($106.81) appears likely.
Implied volatility is low enough to make long call plays tempting.
The Trade: Buy the October $104 call for $3.40.
Whirlpool offers slightly more volatility than XLI and has a quality bullish pattern of its own. WHR passed an important support test after earnings in mid-July and has since climbed to the top end of a double-bottom pattern.
Prices quietly climbed above the 50-day moving average yesterday and are zipping higher by 2% today in a breakout attempt.
If this breakout attempt succeeds, I think we could revisit $240/$250 over the coming months. The low implied volatility once again makes long premium plays a smart idea. However, I like using bull call spreads instead of long calls because of the stock’s higher price tag.
The Trade: Buy the October $230/$250 call vertical spread for $6.90
Your max loss is $6.90, and the max gain is $13.10.
Industrial Stocks to Buy Now: Delta Airlines (DAL)
Delta Airlines rounds out our trio of industrial stocks to buy. Four months ago, the entire airline industry fell out of favor, and it’s largely been worth avoiding since then. But I’m encouraged by the recent bottoming action and behavior in the wake of last month’s earnings report. And it’s not just airlines that have made the turn. As mentioned previously, reopening stocks like casinos and cruise lines are also trying to reverse higher.
DAL stock powered above its 20-day moving average for the first time since early June this week after forming a potential double-bottom pattern. While the technicals may not be strong enough to support an aggressive directional trade, they give a green light for bottoming fishing with naked puts.
The Trade: Sell the September $36 put for 60 cents.
Consider it a bet that DAL sits above $36 at September expiration. If it does, you will capture the max gain of $60 per contract.