[Editor’s note: This article is regularly updated to keep it relevant to the current week.]
As the novel coronavirus crisis rolls on, Wall Street is increasingly becoming a tale of two markets. Companies benefiting from social distancing sit in the bulls’ pen, while those that suffer from the new isolation trend reside in the bears’ den. Today we’re shining a spotlight on the top trades for bulls.
There are a variety of themes that become apparent when scanning the shrinking number of stocks that have escaped the market plunge. They include such industries as consumer staples, telecom, healthcare and technology. It’s not enough to find a candidate that’s exhibiting relative strength, though. Traders need low-risk entry points to justify pulling the trigger.
Even some of the biggest winners during the bloodbath have seen sharp downturns and uncomfortable volatility. As ever, active traders must time their purchases when chart patterns offer up favorable opportunities. Three of my top stock trades for that include:
If you’re willing to bet with bulls despite what is bound to be another volatility-riddled week, then these deserve serious consideration. Let’s take a closer look.
Top Stock Trades for Bulls: Zoom Video Communications (ZM)
Zoom shares just saw their largest pullback of the year after privacy concerns accelerated the selling pressure. Thursday’s session alone saw a drop of 16% before buyers returned to trim the losses. Over 27 million shares changed hands, making it one of the most active days in the stock’s history.
Though stomach-churning for existing shareholders, Thursday’s whack didn’t do much damage to the overall uptrend. The 20-day moving average was breached, yes, but the series of higher pivot lows is still intact. On the fundamental front, the narrative for being a ZM stock bull is compelling. The company has been thrust center stage during the pandemic due to their video conferencing services for the growing crowd of workers that have to work from home.
I think the dip is a buy. Let’s use bull put spreads to increase the probability of profit. If you’re comfortable wagering ZM stock sits above $100 at May expiration, then deploy the following play.
The Trade: Sell the May $100/$95 bull put spread for around $1.35.
Slack Technologies (WORK)
Slack Technologies is making a repeat appearance on my top trades gallery after its strong RSI reading landed it on last week’s list. The initial idea was to prepare for a break over resistance at $30, but we’ve since seen the breakout setup morph into a potential buy-the-dip opportunity.
Last week’s five-day retracement saw light volume compared to the groundswell in accumulation that accompanied its sharp rise. This suggests the selling was garden-variety profit-taking and not trend-ending distribution. With WORK stock fishing for support at its rising 20-day and 50-day moving averages, this is as logical a level as any for buyers to emerge.
Like Zoom Video Communications, Slack has benefited from the work-from-home trend with its team communication tool. If you think the dip gets bought, call spreads offer a low-cost avenue for big profits.
The Trade: Buy the May $25/$30 bull call spread for around $1.60.
Teladoc Health (TDOC)
Teladoc Health rounds out today’s trio with the most consistent uptrend of the bunch. Buyers have been incredibly resilient this year, jamming TDOC stock up approximately 100%. The telehealth company’s offering of on-demand healthcare through mobile devices, video or phone, perfectly positions it for the post-coronavirus world.
The 20-day moving average has been a gathering ground for bulls over the past four months. TDOC shares only breached this oft-watched indicator once, only to see the 50-day average swoop in to save the uptrend. Other than the occasional high volume down-day cropping up, I see nothing of concern on the price front. Teladoc might have the healthiest chart on the planet right now.
Over the past week, a bull pennant has formed. This consolidation pattern should resolve itself higher and presents a lower-risk entry for spectators looking to get in on the trend.
The elevated implied volatility and high stock price make long calls a challenge. I like bull call spreads instead.
The Trade: Buy the May $160/$180 bull call spread for $7.
For a free trial to the best trading community on the planet and Tyler’s current home, click here! As of this writing, he did not hold a position in any of the aforementioned securities.