Stocks are entering the new week with a significant technical tailwind. Last Thursday’s price breakout finally launched the S&P 500 and other major indexes above their recent trading ranges, likely setting the stage for a return to record heights. Given the favorable backdrop, shopping for the best stocks to buy now seems wise.
I’ve scoured the market for the best setups heading into Monday.
A premium was placed on companies whose share price held up well during the recent market turmoil.
Generally, stocks that hold up the best during corrections are those that lead the market higher when sellers finally depart.
On top of relative strength, today’s trio also boasts lower-risk entry points.
Rather than chasing stocks extended from support zones, we’re identifying those that are on the cusp of popping.
With all of that in mind, here are three all-star stocks to buy now.
Snap (NYSE:SNAP) is on pace for a banner year. Its 2019 gain stands just shy of 200%. The turnabout has been fueled by better-than-expected earnings and a price trend that has roasted shortsellers. Since July’s earnings announcement lit a fire under the stock, we’ve seen a falling wedge pattern form to digest gains.
The pause has allowed the 50-day moving average to catch-up and overbought conditions to ease. It has also created a lower-risk entry point for traders reticent to chase after the earnings-driven rally. Friday’s high-volume breakout completed the falling wedge and is pointing toward higher prices.
To capitalize, buy the Jan $16 calls for around $2.30 if we break above today’s high. The lower implied volatility is making long calls an attractive play.
Yum Brands (NYSE:YUM) has been a steady grower this year. Its consistent ascent completely ignored the recent trade war drama, sparing shareholders the losses inflicted in so many other stocks. Its 2019 gain of 30% has bested the S&P 500’s 19% by a hefty margin.
Each time YUM stock has broken resistance this year, we’ve seen robust follow through to reward buyers. The track record has me eyeing its current basing pattern with interest. The $120 zone has thus far halted multiple recent rallies. But with the rising 20-day and 50-day moving averages pushing higher, I think it’s only a matter of time before the ceiling gives way.
If you want to bank on the success of its breakout and a run into year-end, then buy the Jan $120/$125 bull call spread for around $1.90. The risk is $1.90, and the potential reward is $3.10.
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) had an advantage heading into last month’s market swoon that many of its tech peers did not. It scored a large up gap on earnings that pushed it well above its major moving averages. As a result, even though GOOGL stock suffered in August, it remained above its 50-day moving average, maintaining the integrity of its uptrend.
And now, it’s on the brink of breaching short-term resistance, providing a clean breakout setup for spectators to capitalize on.
Implied volatility is dirt cheap, making call spreads the easy play here. Buy the Nov $1,220/$1,250 bull call spread for $14.50. The risk is $14.50 and will be lost if GOOGL sits below $1,220 at expiration. The reward of $15.50 will be captured if it sits above $1,250 at expiration.
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Source: Investor Place