- Monday saw strength across the equity market, leading to these three top stock trades for the week.
- Citigroup (C): Completed an inverted head-and-shoulders pattern on Monday.
- Schlumberger (SLB): This stock is knocking on the door of significant resistance, signaling an imminent breakout.
- Cleveland Cliffs (CLF): Shares are trying to recapture the commodity magic with a double bottom near $20 support.
There’s a laundry list of developments to worry about in the market these days. But right now, I’m looking on the bright side and pitching long plays in this week’s stock trades. Confirmation and follow-through will add further validity, so I’ll highlight the levels to watch before pulling the trigger. Today’s trio landed atop the leaderboard on Monday and had constructive charts to back up the single session of muscle flexing.
What’s more, they come from three different sectors. The diversification increases the chances that at least one catches fire and delivers gains this week. Of course, we’ll need the market to cooperate and build on the green start to the week. If it doesn’t, a quick exit or some quality trade management will be necessary to stave off bigger losses. I’ll share my preferred options strategy to capitalize on each pattern.
Citigroup (NYSE:C) shares soared 6% on Monday, outpacing the S&P 500 and financial sector by a wide margin. With the gain, prices pierced the previous pivot high and the descending 50-day moving average. This is more than simply a countertrend rally. Indeed, it completes and confirms the inverted head-and-shoulders pattern carved out over the past month. Combined with the relative strength, this makes Citigroup a top stock trade right now.
Volume swelled during the session, adding further validity to the move. With a higher pivot high and low to build one, bulls have their best shot in months to turn the trend. If you want more evidence that the breakout is legit, consider waiting for prices to go above Monday’s high of $53.60.
To increase the odds of success, I like building a cash flow trade that will pay out even if C stock stagnates.
The Trade: Sell the Jun $49/$44 bull put spread for 60 cents.
It doesn’t take much imagination to understand the bullish case for energy stocks like Schlumberger (NYSE:SLB). Booming oil prices are driving profits for oil companies to the moon. And at $110, crude doesn’t need to keep going up. Simply treading water at these levels will allow energy companies to continue scoring massive profits.
While we’ve seen other commodities like copper, silver and industrial metals decline alongside risk assets, oil has not.
Over the past three months, SLB stock has been consolidating in a range. Monday’s 6.5% jump jammed prices directly into horizontal resistance near $44.50. A successful breakout here could bring an influx of new buyers and higher prices.
This is a pattern worth going directional on if it triggers. Call vertical spreads offer a cheap bet with loads of upside.
The Trade: Buy the July $45/$50 bull call spread for around $1.55.
Cleveland Cliffs (CLF)
Cleveland Cliffs (NYSE:CLF) concludes this week’s top stock trades edition with a mini-double bottom pattern. Commodity stocks like CLF were scorching hot in February and March before falling alongside the rest of the market. From the peak, the iron ore producer swooned by 40%. The low price tag and juicy options premiums have long made CLF stock a popular candidate for strategies like naked puts and covered calls.
For that reason, I’ve been eyeing the decline with interest, waiting for signs that buyers are finally returning. With the past two weeks of slowing momentum and a double bottom developing, we now have evidence.
Wait for prices to breach Monday’s high of $23.12, then sell puts.
The Trade: Sell the June $20 naked put for approximately 50 cents.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.