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Spectators will rightly point out that the Nasdaq Composite has entered outer space. However, even though the Index is reaching far into overbought territory, I’m still finding many components that offer low-risk entries. And that’s why this week’s top stock trades are focused on the technology sector.
The Nasdaq’s price chart is my new favorite poster child for teaching the masses of the power of trend-following. Its ascent from the March lows has been utterly incredible for both the magnitude and the consistency. In turn, top callers and short-sellers have been smashed, bashed and beaten some more. And if you’ve embraced it, the trend has been a friend indeed.
That said, I scanned the sector to see if there were any potential asymmetric payouts of note and found the following three standouts. And while many of their peers have risen far from easy entry points, these three still offer attractive buy points.
So, if you’re looking for an alternative to chasing Apple (NASDAQ:AAPL) into the stratosphere, try these guys:
As usual, we’ll break down each chart setup and suggest how you can use options to capitalize. Let’s dive in!
Top Stock Trades in the Tech Sector: Qualcomm (QCOM)
QCOM) stock chart showing bull retracement" width="300" height="131">Click to Enlarge
Source: The thinkorswim® platform from TD Ameritrade
July’s earnings report lit a fire under Qualcomm, and it’s been blazing ever since. And overall, I’m particularly impressed by the volume confirmation. The last two upswings saw multiple accumulation days, and the subsequent retracements only saw light profit-taking.
That said, Friday’s pop signaled the end to the latest pullback — and likely the beginning of another advance. Unlike some of the high flyers in the sector, QCOM stock is offering a low-risk entry near its rising 20-day moving average. And with earnings now weeks in the rearview mirror, implied volatility has dropped considerably to the 20th percentile. In turn, that’s making long premium plays like a bull call tempting.
The Trade: Buy the Oct. $115/$120 bull call for around $1.90.
Amazon (AMZN)
AMZN) stock chart showing breakout pattern" width="300" height="131">Click to Enlarge
Source: The thinkorswim® platform from TD Ameritrade
Some breakouts only give you a single chance to catch them. If you don’t open the door when opportunity knocks, then you get left out in the cold.
Meanwhile others give you a second chance — like Amazon. Last week’s resistance breach was solid, but a three day-pause carried the e-commerce titan into the weekend. And now we have a clean secondary entry for those that missed the initial breakout.
In a continuation of our theme looking for tech stocks that aren’t too overbought, AMZN stock hasn’t gone anywhere for five weeks. The pause has allowed others to take the lead, but I think old Amazon may be ready to carry the torch again — and that makes it worthy to be one of our top trades.
So, if you want an aggressive directional play, then purchasing October bull call spreads could work. At 40%, the implied volatility rank is high enough to make bull put spreads interesting, though. For a higher probability play, though, consider the following.
The Trade: Sell the Sept. $3000/$2990 bull put for $1.00 credit.
Top Stock Trades in the Tech Sector: Microsoft (MSFT)
MSFT) chart showing imminent breakout" width="300" height="130">Click to Enlarge
Source: The thinkorswim® platform from TD Ameritrade
Microsoft rounds out this week’s top stock trades with a flight path that echos Amazon’s. Indeed, the pair are eerily similar. Both have consolidated for weeks while the Nasdaq kept its streak of new records alive. And although MSFT stock fell below the 20-day moving average once or twice during the pause, it remained above the 50-day.
Additionally, with last week’s ramp, MSFT stock returned to the upper-end of its range and is now oh-so-close to an upside breakout. It has a solid history of rewarding breakout buyers. Thus, watch $217 as your line in the sand. That’s the level that needs to be taken out to confirm and complete the pattern.
Moreover, implied volatility is low at the 20th percentile. Couple that with the $200+ price tag, and bull call spreads are a smart way to go.
The Trade: Buy the Oct. $220/$230 bull call spread. The price will probably be around $3.80 by the time the stock triggers.
or a free trial to the best trading community on the planet and Tyler’s current home, click here! At the time of this writing, Tyler didn’t hold positions in any of the aforementioned securities.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
