Technical analysts will tell you the best trading opportunities arise around support and resistance. In both cases, you can build out low-risk, high-reward trades. What’s more, it’s usually clear at both areas where the path of least resistance lies. With the recent market pullback, many tickers have fallen to potential support zones. Below, I’ll highlight three of my favorite stocks to buy.
While bears raided the Nasdaq and growth stocks over the past two trading sessions, it is small-caps that arguably bore the brunt of the damage.
At Tuesday’s lows, the Russell-2000 Index was 6.5% off the peak. But even that doesn’t do justice to some of the beat-downs taking place in individual names.
I obviously sidestepped the dumpster fires for today’s selections and focused instead on those showing relative strength on the last upswing. Because of the increasing momentum in their trends, I’m viewing the current dip as a solid buying opportunity.
That’s the pitch. Here are the picks:
Let’s break down each price chart and build an options trade to capitalize on the next advance.
Stocks to Buy: Airbnb (ABNB)
Consider the last four earnings-per-share numbers for Airbnb: -$11.24, -$1.95, -$0.11, and $1.22. The last one arrived earlier this month and was the first time ABNB posted a quarterly profit since going public last year. Investors cheered the turnaround, driving ABNB stock up 13% in a single session.
Like me, you may have looked at the profit-fest with regret for your lack of exposure.
But here’s the good news. You now have a second chance. The stock just filled its earnings gap. It’s also testing old resistance and the rising 50-day moving average. If buyers emerge here and support forms, it’s a great spot to deploy new trades.
I like January bull call spreads, or December bull put spreads. Here’s the structure I prefer for the latter.
The Trade: Sell the December $155/$150 bull put for 53 cents.
Expedia’s flight path has been similar to Airbnb’s over the past month. Robust earnings sent the travel company to a new record high. As you’d expect, volume crescendoed as spectators flocked to the stock.
Over two days, EXPE rose 22%. Given the price momentum and fundamental strength behind it, I’m willing to bet the next dip gets bought.
And, well, the dip is here.
Over the past two weeks, prices have gradually retreated to the rising 20-day moving average. Tuesday’s relative strength was impressive. While many stocks fell, EXPE gained nearly 3% on the session.
Implied volatility is low enough to make buying call spreads feasible.
The Trade: Buy the December $180/$190 bull call for $3.35.
Stocks to Buy: Macy’s (M)
The uptrend in Macy’s over the past quarter has been incredibly consistent. Price and volume have both played well together in support of the uptrend. For that reason, I couldn’t pass up using the company as the final candidate for today’s stocks to buy.
Like its predecessors, M stock’s most recent upswing arrived on the backs of solid earnings. I’m always delighted when a stock rises for an entire quarter and can still vault higher after its next report.
However, if you avoided chasing the gap, your patience paid off. Prices fell back over the past three sessions and ended Tuesday with a narrow-bodied candlestick. While we could see the stock fall further to fill its gap, now is the time to prep a trade in case buyers want to pounce now.
The stock is cheap enough to purchase shares outright if we break above Tuesday’s high. Alternatively, you could sell puts.
The Trade: Sell the December $29 naked put for 47 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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