A rare down day is forming on the Street today amid widespread profit-taking. With equities experiencing their most significant drop in weeks, it’s worth surveying the landscape to spot the most attractive stocks to buy. Selloffs sport many silver linings, like the revelation of relative strength and the creation of lower-risk entries.
Chart watchers are pointing to the oft-watched 200-day moving average looming overhead as the apparent catalyst for sellers’ sudden dominance. I agree with them. But regardless of if you embrace technical analysis or not, you should recognize that the market deserved a breather after setting such a torrid pace for 2019.
Time will tell how far bears press their newfound advantage, but for now, I suggest viewing this as a dip to be bought. I’ve scoured my watchlist and discovered three tempting candidates for the week ahead.
Advanced Micro Devices (AMD)
The recent resurrection in Advanced Micro Devices (NASDAQ:AMD) makes it a must-watch stock. Shareholders are hoping the uptrend sparked by last month’s earnings release will echo the meteoric trend of 2018. The high-octane momentum stock more than tripled in value during last year’s buying bonanza.
With this week’s pullback, the fresh breakout in AMD is facing its first test. Will buyers emerge to defend their newfound turf? Or will the stock return to its pre-earnings level (sub-$20) and end the post-earnings party altogether?
I’m willing to bet on the former. If AMD stock finds support in the next few trading sessions in the $21 to $22 area, then consider selling naked puts to profit. The March $20 strike should do the trick.
While the S&P 500 remains a far cry from its peak, Salesforce (NYSE:CRM) has fully recovered. The stock’s leadership on relative strength is a good omen and makes it one of the better companies for those looking to buy the dip. Its initial retest of the $160 resistance was rebuffed, but I think it just needs time to digest the rebound before seeing new highs.
If the current pullback follows the path of the previous one, we could chop around for a few more days before buyers wrest back control. A dip toward $150 or the 20-day moving average would be ideal.
Consider buying April bull call spreads to capitalize. The April $150/$170 call vertical trades for $8.70 right now and offers a limited-risk, high-reward way to position for continued strength.
Earnings season was a gamechanger for Facebook (NASDAQ:FB). The struggling sultan of social media was finally able to pull out of its nosedive by delivering an earnings report that topped analyst estimates. The budding recovery in the stock that carried FB into earnings accelerated significantly when the stock rocketed 10.8% after the event.
Since the jump, FB has been consolidating in bullish fashion. Today’s 2.6% drop is returning Facebook to the lower end of the zone. Given the magnitude of the gap and the positive earnings momentum now supporting the stock, I think FB is one of the best stocks to buy on the dip.
With an implied volatility rank of 34%, I like buying options here. Wait for FB to trade above a prior day’s high, then buy the April $165/$175 bull call spread. Right now it’s trading for $4.55.
As of this writing, Tyler Craig didn’t hold a position in any of the aforementioned securities. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.
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