Editor’s Note: This article is updated weekly to bring you fresh trade ideas.
Friday’s swoon threw a wrench into price charts everywhere. What was supposed to be a sleepy, holiday-shortened session became a selling frenzy for the ages. Small-caps and other economically sensitive industries got destroyed. Memories of what happened to them during last year’s pandemic returned to haunt investors throughout the day. But rather than focus on the downtrodden for this week’s top stock trades, we’re embracing strength.
And nowhere is the muscle-flexing more impressive than the land of semiconductors. They were leading before the omicron variant arrived and are poised to continue exhibiting relative strength.
In fact, chip stocks were topping the leaderboard in early trading Monday, proving all the confirmation needed that traders remain optimistic about the group.
Here are my three favorite picks:
Below I’ll share why I like them and suggest a smart options trade.
Stock Trades for the Week: Qualcomm (QCOM)
The awakening in Qualcomm shares since the Nov. 3 earnings announcement has been transformative. It singlehandedly turned the price trend and boosted shares to a record high nearly overnight. While some stocks entered last week’s correction with vulnerable charts, QCOM stock came into it from a position of strength. As a result, the five-bar retracement was both healthy and buy-worthy.
Bulls aren’t wasting any time. Prices were already up 4% and within spitting distance of the old resistance zone. The odds favor new highs, and I think $200 is the ultimate upside target.
Bull call spreads offer a cheap way to play.
The Trade: Buy the January $185/$195 call spread for $3.50.
You’re risking $3.50 to make $6.50 if QCOM rises above $195 by expiration.
Advanced Micro Devices (AMD)
On Friday, when panic seized the world and risk assets were in freefall, shares of Advanced Micro Devices barely budged. The red-hot semiconductor closed down 1.9%, remaining within the top third of Wednesday’s powerful bullish candle. But it’s not just the short-term price action that suggests higher prices are coming. The long-term trend and momentum characteristics also indicate the wind is at buyers’ backs.
All major moving averages are rising, and the stock entered orbit on its last advance. When a stock can move into (and stay in) overbought territory, it says something about just how aggressive the bid is.
Like Qualcomm, AMD stock is bouncing back nicely this morning. Consider it a green light for new bullish entries.
The Trade: Buy the January $160/$170 bull call spread for $3.80.
You’re risking $3.80 to make $6.20 if AMD climbs to $170 by expiration.
Stock Trades for the Week: Applied Materials (AMAT)
Applied Materials is your stock trades pick if you want a deeper pullback than that offered by QCOM or AMD. Last week’s retreat returned prices to a previous ceiling. If the principle of polarity holds, this should turn into new support. The price trend did weaken slightly by last week’s drop, but the intermediate-term trend remains firmly intact.
AMAT is joining its predecessors in a rousing bounce Monday morning. We’re pushing above Friday’s high and on target for eclipsing the 20-day moving average. Both developments constitute triggers for new buys. A continuation of the new swing should carry prices back to $159 and beyond.
There’s no need to get overly fancy with the final trade. Let’s continue with our theme of call spread ideas.
The Trade: Buy the January $150/$160 bull call for $4.
You’re risking $4 to make $6 if AMAT gets over $160 in the next 53 days.
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.
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