We’re seeing a significant divergence in the land of growth stocks. Take a look at market-cap weighted funds, and you’ll come away thinking all is fine – even with the past two days of selling.
But then you dig beneath the surface, and you discover it’s a veritable bloodbath as you move downstream into the smaller names. However, given the technical conditions that are flashing, I think a bounce could be in store.
I’ll share three of my favorite stocks to buy below. But first, here are the three signals that support fishing for a bottom.
One: the speed of the descent accelerated over the past two sessions.
Two: volume crescendoed, suggesting potential capitulation.
Three: implied volatility is spiking to confirm genuine fear.
It’s essential to wait for price confirmation before pulling the trigger. I’ll share the levels I’m watching with each pick. That said, here are the growth names to consider:
After a brief look at each chart, I’ll build an options trade.
Beaten-Down Growth Stocks to Shop: Ark Innovation ETF (ARKK)
First on this list of growth stocks to buy, the Ark Innovation ETF lies at the epicenter of the downturn. Sentiment surrounding the types of names that Cathie Wood favors has turned cold. And the chart of ARKK reflects it. Over the past three weeks, prices are down 16%. The fund is also now down 34% from its peak.
The three signs mentioned in the intro are present in ARKK’s chart. The past two days of selling have seen a significant increase in momentum. Volume is exploding, and implied volatility is finally ticking higher.
Importantly, we’re also nearing a long-term support zone near $100.
Once we take out a previous day’s high, consider selling bull put spreads. It’s a way to bet we’re close to a bottom while capitalizing on expensive insurance premiums.
The Trade: Sell the December $95/$90 bull put for at least 50 cents.
Paypal shares were basking at a record high in July. Now they’re down nearly 40%. It’s not just Paypal that’s been suffering, though. Both Square (NYSE:SQ) and Visa (NYSE:V) have taken it on the chin, so the entire industry is struggling right now. Likewise, PYPL’s price trend looks like a falling anvil, dropping almost $100 in a straight line. We’ve long passed oversold territory.
But, major support looms at $175, and we’re long overdue for a snapback. Implied volatility is now on the high side of its one-year range, and options premiums are ripe for selling.
If we can get signs of bottom fishers casting a line over the next few sessions, selling put spreads is attractive. Once again, I like using a break of the previous day’s high as the trigger.
The Trade: Sell the December $170/$165 bull put spread for at least 50 cents.
Beaten-Down Growth Stocks to Shop: Roblox (RBLX)
The final submission for growth stocks to buy is a different animal altogether. Its form of beating came as a two-day pullback from all-time highs. The retreat was powerful but was much-needed given the extreme overbought levels flashing in the stock.
And, despite the aggressiveness of the selling (prices fell 20% over two sessions), the uptrend still looks rock solid, and ROBLOX is one of the hottest stocks in the market right now.
The sky-high implied volatility allows us to sell options way out-of-the-money, providing a high probability of profit. If you’re willing to bet RBLX can stay above $95 for the next three weeks, then enter the following.
The Trade: Sell the December $95/$90 bull put spread for 60 cents.
On the date of publication, Tyler Craig was LONG RBLX. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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