Analyzing the quality of a pullback reveals just how much conviction sellers have. And after dissecting last week’s retreat, I discovered two interrelated things. First, we’re dealing with benign teddy bears, not vicious killers. Second, the dip is a gift we should be thankful for. It created more attractive entries into a broad swath of uptrends. Thus, in this week’s edition of top stock trades, we’re exploring three of the best.
Another feather in the bull’s cap this holiday-shortened week is seasonality. The week of Thanksgiving is not known for bearish behavior. Quite the contrary, the path of least resistance is higher. Furthermore, if we look out beyond Turkey day, equities have a tailwind heading into year-end. In my experience, that’s not an entrenched trend you want to fight — particularly when the price action is healthy heading into it.
In selecting these trades, I opted for a diversified ticker set versus one concentrated in a single sector. That said, they are:
Now, let’s take a closer look at why I believe their patterns point to higher prices.
Top Stock Trades for the Week: Advanced Micro Devices (AMD)
Advanced Micro Devices has been a reliable profit-giver for years. Its history of rewarding breakout buyers is second to none, making it a stock that demands your attention when it’s testing the high side of a base. And, well, it’s doing that right now. Last week’s rally returned AMD stock to an important resistance level at $86.50.
That said, pushing above it should spark a run to $94.28 and beyond. There is a minor pivot near $89 that could impede the breakout attempt, but I wouldn’t worry about it. Semiconductors have been hot this year, and there’s a good chance the momentum returns to AMD if the late-year bullish seasonality holds in 2020.
Thus, I like buying call spreads for a big payout.
The Trade: Buy the Jan. $85/$90 bull call for around $2.10.
Oil prices have quietly risen to a two-month high, and it’s helping breathe new life into what was once the worst sector on the planet: energy. The recent rotation into value and small-cap stocks are also fueling the turnabout. Among the leading companies in the industry, Chevron has the best setup for the new week.
This morning’s jump marks the third Monday up gap in a row. It comes right on schedule after last week formed a perfect bull flag pattern. For four of the past five trading sessions, CVX stock was able to close above the 200-day moving average. This hasn’t happened all year long, and I think it is signaling participants embracing the new uptrend.
Implied volatility is in the basement and makes long premium strategies the way to go.
The Trade: Buy the Feb. $80 call and sell the Dec. $90 call to create a bull call diagonal spread for around $8.20.
Top Stock Trades for the Week: Sunrun (RUN)
The awakening in solar stocks stands as one of the hottest themes of 2020. And it’s the area the final of our top stock trades calls home. For a while, the only way to profit was to chase already extended stocks. But no longer. The entire industry has built a beautiful two-month base, and an upside breakout appears imminent. And of all the stocks in the space, I like Sunrun the best.
Its weekly trend offers a clear bull retracement pattern beckoning to dip buyers. Simultaneously, the daily is just finishing up a double-bottom formation that is triggering with Monday morning’s higher open. We’re also clearing the 50-day moving average, and now have plenty of room to run.
Therefore, given the stock’s big-league volatility, this is a trade best exploited with an aggressive options strategy. Bull call spreads should do the trick.
The Trade: Buy the Jan. $65/$70 bull call spread for around $1.75.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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