3 Growth Stocks with the Best Chance of Bottoming

growth stocks - 3 Growth Stocks with the Best Chance of Bottoming

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Some of the most beaten-down stocks saw the biggest gains this week. The magnitude of the rally coupled with its consistency (the Nasdaq is working on its fourth straight day of gains right now) has many traders wondering if the bottom is in for growth stocks. While I think we need more evidence that a lasting turnaround is afoot, I’m not opposed to bottom fishing in a few names if their price action is constructive enough.

To that end, I scanned a wide variety of growth stocks to see which ones looked best. If this week’s rally failed to change the trajectory of the existing downtrend, then I passed on the stock. Only those that showed reversal characteristics made the cut. Bonus points were given to stocks that climbed through resistance and the 50-day moving average. I was particularly interested in the companies whose shares rallied after their latest quarterly reports.

That said, here are the top three candidates for growth stocks that have a solid chance of bottoming:

  • Block (NYSE:SQ)
  • Crowdstrike Holdings (NASDAQ:CRWD)
  • Nvidia (NASDAQ:NVDA)

You’ll find compelling bottoming patterns in all three. Let’s dive into the charts and map out an options trade for each.

Growth Stocks : Block (SQ)

Block (SQ) stock chart with bullish trend reversal.

Source: The thinkorswim® platform from TD Ameritrade

From peak to trough, SQ stock fell 71% over seven months. The first earnings announcement during the decline had little impact, but the second one made all the difference.

During the first quarter, the majority of growth stocks fell after earnings. And that’s even after many of their share prices were already cut in half. The disappointing trend made the few who could jump on their reports memorable. Block was one of them.

The stock ballooned 60% over three trading sessions. Though it eventually filled the gap, buyers returned and the gap-fill became a new, higher support level. This week’s rally carried prices through two old resistance pivots and the 50-day moving average.

With that, the daily trend has officially reversed. Prices are extended in the short run, so you might consider waiting for a pullback before entering.

The Trade: Buy the May $130/$150 bull call spread for around $8.

Crowdstrike Holdings (CRWD)

Crowdstrike Holdings (CRWD) with double bottom pattern.

Source: The thinkorswim® platform from TD Ameritrade

Crowdstrike Holdings is a darling among growth stocks. It rose nearly tenfold over the 18 months following its March 2020 pandemic low. And, even though its share price fell 50% during the recent fallout, it still held up far better than most.

Like Block, CRWD stock gapped higher on earnings earlier this month. The jump pulled prices back above the 20-day and 50-day moving averages.

Prior to that, we saw multiple tests of the $150 price level hold as support, so the trend reversal was built on a solid foundation. Recently, CRWD has been a choppy stock, so patience is required for today’s trade idea. But if you think the turnaround has legs, this options spread will pay out. The next logical stop for the stock is the 200-day moving average, near $230.

The Trade: Buy the May $200/$230 bull call spread for $12.

Growth Stocks: Nvidia (NVDA)

Nvidia (NVDA) stock chart with bullish reversal

Source: The thinkorswim® platform from TD Ameritrade

We end our growth stocks adventure with the biggest one of the bunch: Nvidia. Its robust balance sheet and earnings power meant it would never get beaten down as much as the more questionable growth names.

Ultimately, the shares tumbled 40%. That seems like a lot, but it wasn’t given the massacres seen elsewhere.

After nailing the floor of $210 five times in a row, buyers finally reversed the trend this week. NVDA stock closed above the 50-day moving average on Thursday, and prices are surging into the weekend. With a bottom officially in place and a new trend beginning, this is as good a time as any to add exposure.

The Trade: Buy the May $275/$300 bull call spread for $7.40.

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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