Buy Berkshire Hathaway Stock As It Blasts to a New High

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Every bear market has a silver lining. In fact, they have many. But the one in play today is the idea that drawdowns in the S&P 500 reveal relative strength. Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) is one such ticker popping to all-time highs while its peers remain mired in the mud. As such, I’m investigating why the outperformance is so significant and how we can profit using BRK.B stock options.

A Berkshire Hathaway (BRK.A, BRK.B) sign sits out front of an office in Lafayette, Indiana.

Source: Jonathan Weiss / Shutterstock.com

In a sea of red, green stocks are easy to spot. The reason for the outperformance varies, but the takeaway is the same. These are tickers that investors love and are willing to hold and even chase despite the rest of the equities market falling out of favor.

If it wasn’t obvious, the implications are bullish.

BRK.B Stock Is Poppin’

Let’s start with the price chart to chronicle the impressive run of Warren Buffett’s flagship. The weekly chart just completed an ascending triangle pattern. The consolidation allowed BRK.B stock to digest the substantial gains seen at the outset of 2022 and build a base for the next stage of its advance.

We saw two attempts by sellers to pull prices lower and break the 20-week moving average, but both failed. A pair of higher pivot lows formed to show increasing demand. At the same time, $325 has held firm as resistance marking the obvious spot that needed to be breached for the pausing pattern to complete.

We’re blasting through this ceiling as I type Thursday morning.

Berkshire Hathaway (BRK.B) stock weekly chart with ascending triangle pattern.

Source: The thinkorswim® platform from TD Ameritrade

Along the way, the momentum-based RSI indicator cooled from its overbought conditions. The lowest it ever pushed during the rest was 60, so we remained in bullish territory the entire time.

The history of weekly breakouts should make traders optimistic as well. Berkshire delivered significant gains following the last two episodes from February and December last year.

The daily chart provides a closer look at the triangle’s development. Both pullbacks were steep, but I’m most impressed by how aggressively buyers returned at the bottom of each retreat. The reversal candles on Jan. 24 and Feb. 24 were extremely convincing. Volume swelled, and prices punched into the close on both sessions.

The follow-through has been similar in both cases, except this go around, we’re taking out resistance. Moving averages are also rising in support of the bullish breakout attempt.

Berkshire Hathaway (BRK.B) daily stock chart with bullish breakout.

Source: The thinkorswim® platform from TD Ameritrade

About that Relative Strength

Stocks that can notch new records while the broad market sinks often continue to lead when the rest of the market finally turns around. It would be one thing if BRK.B stock were in the energy or gold space. Both areas have seen their constituents zoom higher due to inflationary pressures.

The ongoing war between Russia and Ukraine has thrown a monkey wrench into the oil markets and has prices at their highest levels since 2008. Naturally, oil stocks are booming. The heightened uncertainty has precious metals catching a bid as well.

But Berkshire Hathaway is hardly a pure energy or metals play. That fact makes its relative strength all the more impressive in my mind. So far, BRK.B stock is up 8% for 2022. The S&P 500 is down 9%.

How to Play with Options

At over $300, some traders may balk at the hefty price tag. If you’re one of them, your solution is to use options. With call vertical spreads, you can reduce the cost to less than two shares of stock. I will buy a few months to give the stock plenty of time to make its move. That way, if broad market woes succeed in dragging Berkshire down in the short run, we’ll have time for a comeback.

The Trade: Buy the June $330/$345 bull call spread for $5.60.

You’re risking $5.60 to make $9.40 if the stock rises to $345 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.


Article printed from InvestorPlace Media, https://investorplace.com/2022/03/buy-berkshire-hathaway-brk-b-stockas-it-blasts-to-a-new-high/.

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