The market recovery reached two significant milestones Tuesday. First, the S&P 500 closed above its 200-day moving average, officially placing it back on the high side of all major averages. Second, the Nasdaq, which has seen serial underperformance, closed above its 50-day moving average for the first time in over three months. The technical improvements had me scanning for the best tech stocks to buy.
I found many noteworthy candidates.
Tech stocks have been hit the hardest in recent months, making them a challenging choice for bullish trades. Far better opportunities have beckoned in commodity-related areas like miners and oil stocks.
But with the Nasdaq reclaiming the bullish side of the 50-day, bulls have officially returned, and sentiment seems to be warming to tech.
Here are three popular picks that boast reversal patterns worth playing:
Two of them have already broken out and completed their bottoming bids. The third is knocking on the door of its resistance break right now. Let’s take a closer look.
Tech Stocks to Buy: Microsoft (MSFT)
Tech giants are awakening across the sector. But some have run too far to justify new entries. Microsoft isn’t one of them. In fact, with Tuesday’s 1.6% rally, the software giant cleared resistance at the psychologically significant $300 level. It also confirmed a double-bottom pattern while blasting through the 200-day moving average.
This is the best MSFT stock has looked this year. It could certainly participate in a market pullback, but I suspect we’ll form a higher pivot low to match the higher high we just developed.
To create higher odds of success, I’m going with a short put spread as my play of choice here.
The Trade: Sell the 22 April $280/$275 bull put spread for 60 cents.
It’s a bet that MSFT stock will be above $280 at expiration.
As a Saas company lumped in with growth stocks, Salesforce.com has participated fully in the market’s unraveling. From peak to trough, the leading cloud company tumbled 41%. Fortunately, the past month has seen promising price action. Indeed, CRM stock has mirrored MSFT to a certain extent.
Two old resistance pivots have given way, and prices just took out the 50-day moving average. Rather than sell-off aggressively like the last half a dozen bounce attempts, CRM stock has held firm. At the same time, we’ve seen a pair of booming bars on the volume study to suggest institutional accumulation.
Once again, I’m favoring the higher probability route of selling puts spreads over buying calls.
The Trade: Sell the April $200/$195 bull put for 60 cents.
Tech Stocks to Buy: Advanced Micro Devices (AMD)
Today’s final admission for tech stocks to buy is a semiconductor darling. Advanced Micro Devices stuck the landing at $100 three times and has rallied back to test its descending 50-day moving average. Last week, Nvidia (NASDAQ:NVDA) sailed through its 50-day and fully reversed into an uptrend. I think AMD stock will follow suit.
The past two trading sessions saw resistance at $118, so that’s the level we need to rise above to trigger today’s idea. One benefit to the recent consolidation is it gives the stock plenty of gas in the tank for follow-through if it can breakout.
Consider $133 the next stop. To offer variety to the previous two put spreads, let’s go with a more directional call spread.
The Trade: Buy the May $120/$130 bull call spread for around $3.30.
You’re risking $3.30 to make $6.70 if AMD sits above $130 at expiration.