Berkshire Hathaway (NYSE:BRK.B) is a mighty tempting target for dip buyers right now. You see, not all tickers lie in tatters after the market meltdown. A select few, like BRK.B stock, weathered the wicked winds with ease.
They pulled back, yes, but not to the extent that their well-entrenched uptrends suffered. No prominent support zones were breached, no pivotal moving averages shattered.
Chartists call it relative strength or outperformance. It’s a valuable attribute when sellers storm the castle. When the market becomes monolithic, and correlations run to one, it’s a welcome sight when a stock falls less than its brethren.
It’s also a tell. Often the equities that exhibited strength on the way down are first to leap higher once the bear raid has ended.
Admittedly, the outperformance of BRK.B stock hasn’t been all that earth-shattering. From peak to trough, the S&P 500 fell 12.3%. Both the Nasdaq and Russell 2000 did even worse. Meanwhile, Buffett’s flagship only dipped 9.12%, and with Tuesday’s rousing recovery, it’s now only 5% off the highs.
But it’s not just the mild muscle-flexing during the drawdown that makes buying Berkshire stock attractive. It’s the fact that its price chart remains one of the cleanest available.
BRK.B Stock Charts
Let’s start with the weekly time frame. Remember the tone of the market before the recent unraveling. Value stocks were coming into favor, led by sectors like financials and energy. While energy had booming oil prices fueling the rise, banks were relying on the specter of higher interest rates to buoy their shares. As one of the largest financial companies in the market, Berkshire Hathaway shares were a logical target for investors looking to cash in on the new trend.
After months of sleepy behavior between $270 and $290, BRK.B stock rocketed through crucial resistance at $300 and made a quick 10% trip higher.
Because of its lofty position ahead of the market correction, prices had plenty of room to fall without damaging the newly energized trend. Perhaps more than any other, that reason is why the price chart looks so good right now.
The past week and a half of selling appear nothing more than a garden-variety retracement or pullback pattern on the bigger time frame. We remain above all major weekly moving averages.
On another note, the volume during the drop wasn’t that significant. Rather than an institutional-led exodus, I’d consider it a mild bout of profit-taking by weak hands. And that makes it far easier for the next bounce to succeed because we don’t have a mountain of overhead supply standing in our way.
Consider the daily chart for more detail of the recent breakout and pullback. BRK.B. had a red-hot start to the year for a stodgy old value stock. While the subsequent retreat did break the 20-day moving average, it stuck the landing at the 50-day. Ultimately, that kept the $300 breakout intact and maintained the integrity of the overall bullish trend.
I’m particularly impressed by Tuesday’s recovery. Prices broke the previous day’s low, but rather than spin out of control, buyers swarmed to score an epic rebound by day’s end.
Bet with Buffett
The options market provides multiple ways to play if you want a lower cost (and more leveraged) alternative to buying shares. In this case, there’s no need to get fancy. A simple call vertical spread will do.
The Trade: Buy the March $310/$330 bull call spread for $7.
You’re risking $7 to make $13 if BRK.B. stock climbs above $330 by 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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