3 Top Stock Trades for the Week of Jan. 31, 2022


stock trades - 3 Top Stock Trades for the Week of Jan. 31, 2022

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The long-awaited and desperately needed bounce has arrived. It took longer than most expected, but a delayed rebound is better than none. Monday’s thrust is carrying equities higher for the second day in a row, and the S&P 500 is breaching short-term resistance for the first time since the correction began. So we’re focusing on the bullish ideas for this week’s top stock trades.

I’m particularly intrigued by the relative strength in beaten-down growth stocks.

On Monday afternoon, the best-performing fund on my watchlist was the Ark Innovation ETF (NYSEARCA:ARKK), with a 9.5% gain. For now, it’s just a counter-trend rally, but it’s providing an excuse to scan the space for potential bullish ideas.

Here are three names that look promising based on their price patterns.

  • Netflix (NASDAQ:NFLX)
  • Robinhood Markets (NASDAQ:HOOD)
  • Tesla (NASDAQ:TSLA)

Let’s take a closer look at each chart to map out why it could be worth bottom fishing.

Top Stock Trades for the Week: Netflix (NFLX)

Netflix (NFLX) stock chart with gap fill beginning

Source: The thinkorswim® platform from TD Ameritrade

Netflix shares got destroyed on earnings after the company’s growth numbers failed to impress the Street. The one-day 25% plunge returned NFLX stock to its pre-pandemic levels, giving back all the ground gained from the stay-at-home trend.

On the one hand, bears will argue the underwhelming earnings and now ugly downtrend in price are reasons to steer clear. On the other hand, bulls are arguing the plunge was overdone, and you’re now getting a rare opportunity to scoop up shares of a fantastic company 50% off the highs.

With Monday’s jump, NFLX has moved into the gap area and could be on its way to revisiting the 20-day moving average. If you think the bounce has legs, this could be an intelligent time to deploy a bull play. The higher price tag makes spread trades a must.

The Trade: Buy the $430/$450 bull call spread for $7.30.

You’re risking $7.30 to make $12.70 if NFLX climbs to $450 by expiration. To increase your odds of success, consider exiting early once we touch $450.

Robinhood Markets (HOOD)

Robinhood Markets (HOOD) stock chart with bullish response to poor earnings.

Source: The thinkorswim® platform from TD Ameritrade

Robinhood Markets has been a serial disappointment since going public. Short of the two-day surge that followed the IPO, the stock has gone down nearly every week.

Prices are down 85% from the peak and notched a new low on Friday following a down gap on earnings. But if you thought the disappointing quarterly report would spark another cascade lower, you’re wrong. So far, at least.

Buyers swarmed to snatch-up shares on Friday, creating a compelling short-term pivot low. HOOD stock was up another 8% on Monday to test the falling 20-day moving average.

There’s a groundswell in volume accompanying the two-day surge, suggesting bulls are finally fighting to form a bottom. Much work remains, and a bullish entry here is probably still speculative. Nonetheless, I’m encouraged by the robustness of the recovery since Friday’s open.

If you’re willing to wager that HOOD stock holds steady or rises from here, sell puts.

The Trade: Sell the March $10 put for 53 cents.

Top Stock Trades for the Week: Tesla (TSLA)

Tesla (TSLA) stock chart with 200-day moving average support bounce.

Source: The thinkorswim® platform from TD Ameritrade

The final idea for this week’s top stock trades is Tesla. Friday’s rebound allowed shares of the electric vehicle stock to hold above the 200-day moving average and critical support at $800.

Monday’s nearly 11% gain showed powerful follow-through, and I think prices could continue rallying to the 50-day moving average. That leaves another $100 of juice in the rebound.

For now, this is a counter-trend rally, so I wouldn’t get overly greedy about taking profits if you’re going directional. If you want to increase the odds and are willing to wager the low is in for TSLA, then selling put spreads offers a higher probability alternative.

The Trade: Sell the March $700/$690 bull put for $1.10.

You’re risking $8.90 to make $1.10 if the stock sits above $700 at expiration.

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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