3 Of The Best Trades On Wall Street Right Now

best tradesThese three beauties boast solid price patterns

The silver lining of any and all market selloffs is their ability to return the Street’s favorite stocks to support levels. These floors provide multiple benefits. For starters, trade setups forming around support provide a clear price level to trade against.

If the stock stays above-said level, then buyers are in control. If it tumbles beneath, then sellers have stolen the show. With such clean “if-then” statements it’s easy to identify when to jump ship for traders playing the pattern.

Another benefit is the low-risk high-reward trade setup. Indeed, the best trades always offer an asymmetric payout. There’s no better time to put your money on the line than when the potential loss is small relative to the potential gain.

With last week’s mild drubbing, the S&P 500 now sits 3% off its highs and is nearing potential support. My weekend scanning of the marketplace revealed a pair of potential support buys as well as one short trade setups in case the bears remain frisky.

Behold, three of the best trades on the Street.

The Best Trades on the Street: Salesforce (CRM)

Salesforce.com, inc. (NYSE:CRM) shares top today’s list with a delightful retracement pattern. The cloud computing company staged an impressive breakout two weeks ago on monster volume. The surge carried CRM stock to a new all-time high at $86.42, busting through significant resistance in the process.

Since then a quiet pullback has taken shares back to the breakout area. If the adage of old resistance becoming new support holds true, this could be a solid area to initiate a bullish trade.

If CRM can rise above Friday’s high ($84.06), consider buying the June $82.50/$87.50 bull call spread for around $2.25. When entered at this price the risk is limited to the initial $2.25 debit. The reward will be limited to $2.75.

The Best Trades on the Street: Micron (MU)

For our next highlight, we return to the tech sector. But this time we’re talking semiconductors. Micron Technology, Inc. (NASDAQ:MU) struggled last week alongside its peers Nvidia Corporation (NASDAQ:NVDA) and Advanced Micro Devices, Inc. (NASDAQ:AMD).

But while the latter two have fallen below key intermediate-term support levels, MU stock has held firm. Sure, Micron has breached short-term support, but it remains above its rising 50-day moving average giving it the healthiest looking trend of the bunch.

Last week’s selling raid ushered MU shares back to their pre-earnings level — which is what has me interested. The stock has now filled its earnings gap, creating a lower-risk entry in the process. Price gaps, once filled, often become support. If you think this dip, like so many of its predecessors, gets bought, then consider buying the July $27/$30 bull call spread for $1.17.

The risk is limited to $1.17 while the reward is limited to $1.83.

The Best Trades on the Street: First Solar (FSLR)

For our final pitch, we’re switching teams. Solar stocks are entrenched in downtrends and have delivered many profits to short sellers. First Solar, Inc. (NASDAQ:FSLR) is one of the best buddies of the bears these days. The stock is down 14% year-to-date and is currently nestled beneath all major moving averages.

Last week’s rebound created an interesting bear retracement trade setup for FSLR. Couple the price pattern with the elevated implied volatility and we could make a case for selling bear call spreads.

If you think FSLR stock keeps plumbing the depths, sell the May $30/$32.50 bear call spread for around 43 cents. Consider it a bet that First Solar shares sit below $30 at May expiration. The reward is limited to 43 cents while the risk is limited to $2.07.

Note: The author of this article is Tyler Craig. At the time of this writing, Tyler had no positions on any of the aforementioned securities.

 

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Category: The Spread Trader

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The author of this article is a contributor to InvestorPlace.com.