After a long slumber, bears have finally awakened. Their wrath is being felt across all risk assets, and we’re officially in the midst of the biggest correction in the S&P 500 for the year. Granted, we’re still only down 5% from the peak, but in as low a volatility environment as we’ve seen this year, that qualifies as the worst whack of 2021. And yet, despite the mayhem, I’m sharing three stocks to buy.
When the market backdrop gets as ugly as it is now, I get extremely selective on new trades. Only the best setups make the cut, and even then, I sometimes pass until the S&P 500 starts to show signs of bottoming.
Today’s trio all boast relative strength and uptrends that remain intact. What’s more, they all saw increasing momentum on the last advance, despite a sinking market.
That’s the pitch. Here are the picks:
Let’s take a closer look at each chart to chronicle the recent muscle-flexing. Then, we’ll map out a path to profit.
Stocks to Buy: Cameco (CCJ)
If you’re going to buy something while the sky is falling, it certainly helps if it doesn’t have a strong correlation to the stock market. Lately, shares of Canadian uranium producer, Cameco Corp, have been moving to the beat of their own drum. Sometimes CCJ stock moves with the S&P 500; sometimes it doesn’t. As a result of the mixed relationship, CCJ has a 10-week correlation to the market near zero.
This is the type of stock I’d be willing to buy in large part because further market weakness doesn’t automatically mean CCJ will suffer. But that’s not all. The price chart looks bullish. We just saw nearly a month of rising prices that took CCJ from $15 to $26. Volume surged, adding legitimacy to the move. And now, we have our first pullback. It’s been deep, yes, but we’re still above the rising 50-day moving average.
I like selling puts to bet CCJ will stay above $17 for the next month.
The Trade: Sell the November $17 naked put for 50 cents.
Uber Technologies (UBER)
Three weeks ago, I wouldn’t have touched Uber with a 10-foot pole. But much has changed.
The primary reason for my about-face was the massive gap on Sept. 21 that single-handedly reversed the downtrend. Volume eclipsed 100 million shares, marking the highest volume session of the year. This wasn’t some retail-driven micro-rally but an institutional-led influx.
Given the strength of the ramp, I’m inclined to believe the new uptrend will have staying power. And that makes me a buyer of dips.
Over the past three days, UBER stock has retreated three sessions, ending with a doji on Thursday. This morning’s gap higher is confirming a new upswing is beginning. I would build a directional play in a healthier environment, but to respect the broader market correction, we’re taking the higher probability route with a naked put play.
If you think UBER can stay above $37.50 for the next month, enter the following play.
The Trade: Sell the November $37.50 puts for 50 cents.
Stocks to Buy: Marathon Oil (MRO)
If there’s one sector that has shone brightest during the recent drama, it’s energy. And that makes it an obvious place to look for stocks to buy.
You can thank the strength in crude oil for the sector’s spunk. Oil prices are back to testing major resistance near $75 and haven’t budged in recent days, despite the thrashing suffered by equities.
There are a lot of good-looking energy stocks right now, but I’d suggest taking a good look at Marathon Oil. Its share price is flirting with a major breakout over $14. This zone has provided stiff resistance for the past five months. Once we take it out, I suspect buyers will come running.
Additionally, the cheap price tag of MRO stock makes it a great candidate for selling puts. The margin requirement is low, and the potential return is juicy.
The Trade: Sell the November $12 naked put for 36 cents.
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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