The S&P 500 is flirting with its long-awaited breakout over critical resistance at the 2800 zone. To commemorate and capitalize on a potential upside surge, today we’re looking at the top breakout stocks to buy.
Ever since last October’s gut-wrenching plunge, 2800 has stood atop the market like an impenetrable ceiling. No less than five separate rallies were stopped dead in their tracks at this level. Indeed, this graveyard in the sky has been where rallies go to die.
Until now, that is.
With Friday’s ramp and this morning’s follow-through, we may be witnessing a breakout. The health of the rally is undeniable.
In celebration of the resistance breach, I’ve scoured the market and found three top breakout stocks to buy.
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Bank of America (BAC)
Bank of America (NYSE: BAC ) is one of the possible breakout stocks today. At the time of this writing, it is up 2% and testing the upper end of its post-earnings trading range.
Ever since BAC stock pole-vaulted higher in mid-January on better-than-expected earnings results, the banking behemoth has been in base-building mode. The two months of digestion has allowed the 50-day moving average to catch up and all overbought pressures have eased.
With the stock well rested, the next breakout should have legs. The next resistance level at $31.50 is beckoning so consider it the target if BAC can successfully trade outside of its current range.
Because implied volatility is in the tank, I like long premium plays here like buying calls, call spreads and the like. Consider purchasing the May $29 call for around $1.50.
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Our next breakout stock to buy was highlighted in last week’s gallery , but the beauty of its pattern demands another mention. Amazon (NASDAQ: AMZN ) bulls succeeded in defending the lower end of the stock’s 3-month range and have since driven it to the upper end.
This morning’s 1.35% rally is carrying AMZN stock through the ceiling as well as the 200-day moving average. I have a suspicion this could be the breakout we’ve all been waiting for. To be fair, we still need a close above resistance — this could be an intraday fakeout. But, it looks promising, to be sure.
I particularly like the accumulation day registered on Friday. In fact, we’ve seen high volume up days during the past two upswings, suggesting institutions could be wading back into the waters.
Like its predecessor, AMZN has cheap options making long premium plays the way to go. If you want to control the cost, then use bull call spreads over long calls. The May 1750/1800 bull call can currently be purchased for $23.
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For the final of our breakout stocks, we’re turning to a higher-beta, smaller-market-cap company — Iqiyi (NASDAQ: IQ ). The Beijing-based online video platform has been one of the strongest stocks on the rise this year. The latest catalyst for its ascension was a mid-February earnings release which delivered a two-day 28% rip that formed a pole to the current bull flag.
The three weeks of consolidation that we’ve seen since have allowed overbought conditions to ease and the 20-day moving average to catch up. With Friday’s high volume jump and this morning’s additional gains, the next up leg could be upon us.
Implied volatility is trading at the lowest levels we’ve seen since IQ stock’s IPO. That means long calls are a cheap play here. Consider buying the May $27.50 calls for around $2.50.
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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