Last week, buyers returned with a vengeance, sending the S&P 500 higher by 1% for four consecutive days. The participation groundswell created a bullish technical signal known as a “breadth thrust.” Past episodes with such a broad-based and consistent surge resulted in more gains over the coming months. Instead of being the last gasp of a dying bull, they were the first breaths of a new one. This will color my approach to future editions of the best stock trades to consider.
But as rosy a picture as that may paint for the broad market, my eyes were drawn to three stocks that didn’t fully benefit from last week’s rebound. They went up, but the bounce was one of the dead-cat variety. In other words, their trends are still pointing lower, and there’s a heap of overhead resistance.
In addition, I think the broad market might need to pause or pull back following such a swift ascent which should work to the advantage of the following trio of ideas.
You’ll find compelling bottoming patterns in all three. Let’s dive into the charts and map out an options trade idea.
Top Stock Trades for the Week: Clorox (CLX)
The booming profits from the pandemic are now a distant memory for Clorox. Its share price has given back the Covid-19-inspired gains and then some. On the negative side, it places CLX stock in a steep downtrend on all time frames, making it an obvious “stay away” for chart watchers. If you want a silver lining to its share price getting nearly halved, it’s that the dividend yield has climbed back up to 3.5%.
However, what caught my attention was the classic bear retracement pattern that formed from last week’s four-bar bounce. The rally came after a steep decline and failed even to sniff the falling 20-day moving average. I’d rather be a seller of this rebound than a buyer.
The Trade: Buy the May $130/$125 bear put for $1.60.
Consider it a bet that CLX falls back down to $125 by expiration.
Rivian (RIVN)
Rivian saw four days of glory following its IPO, but that was it. Since then, it has been a veritable disaster. At last week’s lows, the peak-to-trough drawdown reached a decline of 81%. The two earnings reports that have come since its debut were disappointing. And the price trend has given zero reasons for optimism or betting on a bottom.
The decline carrying prices into March saw increasing momentum and makes last week’s bounce all the more suspect. While many momentum names saw big buyers return, RIVN stock did not. With the 20-day moving average sliding lower overhead, this is as logical a spot as any for sellers to wrest back control. If you think RIVN revisits the recent low near $33, then buy put spreads.
The Trade: Buy the May $40/$30 put spread for $3.50.
Electronic Arts (EA)
Electronic Arts rounds out this week’s top stock trades idea with a textbook bear retracement of its own. Usually a choppy stock, EA has entered a consistent downtrend for the past two months. The series of lower highs and lower lows remain interrupted and is bolstered by declining 20-day and 50-day moving averages.
The last pivot low saw EA stock fall to a fresh 52-week low, making the snapback extremely suspect. I suggest waiting for confirmation that the next downswing has begun before entering bear plays. Consider using Friday’s low ($123.39) as your trigger.
If you want a higher probability idea, try selling May call spreads.
The Trade: Sell the May $140/$145 bear call spread for 60 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.
