If you doubted just how powerful the bid beneath the surface was, this week has offered a powerful reminder. So to help you capitalize on the market’s buoyancy, I’m sharing three of my favorite stocks to buy now.
On Wednesday, stock indexes suffered a nasty selloff into the close. The Russell 2000 closed down nearly 2% on heavy volume. And with the daily chart of the S&P 500 so extended, it looked as if a well-deserved pullback was upon us.
But buyers had different plans.
Stocks came roaring back on Thursday, gaining back all that was lost on Wednesday and then some. The speed at which bulls return to small caps was awe-inspiring, and the takeaway is clear: the path of least resistance is higher, not lower. With bulls reasserting themselves, I was able to find three attractive trade setups in the following names:
Let’s take a closer look at each chart.
Stocks to Buy: Caterpillar (CAT)
Caterpillar fell out of favor in early June and hasn’t given chart watchers a reason for optimism until now. But I’m encouraged by Thursday’s response to earnings. CAT stock rose 4% on above-average volume, forming a higher pivot low in the process. It also succeeded in closing well above the 50-day moving average and is within striking distance of breaking through resistance near $204.50.
From peak to trough, Caterpillar fell 24% over the past five months. The silver lining of the drawdown is it cheapened prices by removing some of the froth that got baked into the stock during the post-pandemic run.
I like using $215 as your first upside target, followed by $225. Bull call spreads offer a limited risk way to play.
The Trade: Buy the December $210/$220 call spread for $2.80.
You’re risking $2.80 to potentially capture $7.20 if CAT rises beyond $220 by expiration.
Oil prices finally succumbed to some profit-taking this week. The descent pulled energy stocks lower with it, but buyers were quick to pounce once oil reached its rising 20-day moving average. Thursday ended with a powerful bullish hammer candle and put me on the hunt for a long energy play. While there is no shortage of uptrends in energy, Halliburton stood out as a beautiful setup.
Earnings have come and gone for the oil services giant, and its uptrend remains intact. What’s more, yesterday’s bounce took place at a significant price zone — $25. Over the first six months of the year, $25 was an important resistance zone. Now, it’s acting as support and offers a smart entry point if you think the bull market in energy will persist.
The lower price tag makes HAL stock a potential long call candidate, but I’m sticking with a call spread because of the higher probability of profit.
The Trade: Buy the December $25/$29 bull call spread for $1.35.
You’re risking $1.35 to make $2.65 if HAL climbs to $29.
Stocks to Buy: Wells Fargo (WFC)
The final stock to buy takes us to the financial sector. While I’m normally partial to companies like JPMorgan Chase (NYSE:JPM) and Goldman Sachs (NYSE:GS), I found the pattern in Wells Fargo too compelling to pass up.
For starters, WFC stock ripped higher after this month’s earnings release. Then, once it encountered overhead resistance at near $51, prices simply drifted sideways for a few sessions instead of selling off. Finally, with Thursday’s 2.62% jump, prices are now on the cusp of breaking out to a new 52-week high.
A break over $51.41 should bring more buyers to the yard.
The Trade: Buy the December $50/$55 bull call for $2.
The risk is $2, and the max reward is $3. To capture the entire gain, you need WFC to rise above $55.
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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