Tech stocks are on the move Monday. It’s a beautiful turn of events bringing leadership to an area that has been shut out for weeks. Momentum traders will tell you a market led by tech is usually more fun and profitable. Today is a perfect example. In celebration of the newfound strength and in hopes of more gains to come, this week’s top stock trades focus on technology.
Spotting the muscle-flexing was a simple matter of sorting my ETF watchlist by percentage change. The top three performers are ARK Innovation ETF (NYSEARCA:ARKK), Semiconductor ETF (NYSEARCA:SMH), and Technology Sector ETF (NYSEARCA:XLK). All of them are up 2% to 3%.
With the rally, XLK was able to vault back above the 50-day and 20-day moving average. Chart watchers are cheering the return to bullish territory and hoping it signals an end to the correction that lowered the sector as much as 9%.
I scoured the sector in search of the best breakouts. Here are my three favorites.
Read on for a brief rundown of each price chart and an options trade idea to capitalize.
Top Stock Trades: Roblox (RBLX)
Roblox spent the first two months of its public life carving out a trading range. The whippy price action gave little reason for trend followers to participate. What smart traders were waiting for was a breakout and the start of a trend. Additionally, the passage of time allowed for the 20-day and 50-day moving averages to develop.
Today’s 7% pop is signaling the breakout is here. This is the best buy signal we’ve had since the IPO. The volume surge is confirming I’m not the only bull excited by the action.
I think a quick run to $100 could be in store. Call spreads offer a cheap way to play.
The Trade: Buy the June $90/$100 bull call for $2.90.
Nvidia (NVDA)
Two semiconductors made this week’s list. Nvidia demanded a mention because it announced a 4-for-1 stock split. The news comes ahead of the company’s earnings report Wednesday. Rather than wait to see what the numbers look like, buyers are swarming. NVDA stock is up 5% in late-day trading. Barring a complete disaster on the announcement, I suspect the looming split will continue to provide a tailwind for the stock.
The fact that the tech sector is returning to an uptrend at the same time is simply icing on the cake.
Rather than selling put spreads for their high probability of profit, I prefer buying upside call spreads to get a higher payout if the stock pushes higher. You can widen or shrink the spread width if you want to modify the trade cost and potential profit. I like the following structure.
The Trade: Buy the July $650/$570 bull call for $6.70.
Top Stock Trades: Applied Materials (AMAT)
Applied Materials rounds out our trio of top stock trades with a delicious trendline breakout. It didn’t need a stock split as an excuse to buy. The price action was tempting enough. As the chart shows, AMAT is blasting through the descending trendline that defined its movement for the past six weeks. It’s simultaneously pushing above the 20-day and 50-day moving averages.
The move comes following last week’s earnings report, which was snatched up after a down open. A trip back to its $146 high seems likely. Buy call spreads to capitalize.
The Trade: Buy the July $135/$145 bull call for $3.90.
On the date of publication, Tyler Craig held a long position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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