3 Breakout Trades In A Nosebleed Market

best tradesCRM, FDX and BABA are all ready to bust through resistance

The bull market is charging on, and breakout trades are multiplying. If you’ve ever wondered why chart watchers are obsessive about trading with the trend, wonder no longer. The adage of a trend in motion staying in motion has been on full display this year, particularly in the Nasdaq, which went out with a bang last week. The tech-heavy index ramped 1% on Friday, intensifying an already torrid ascent.

Is the market in the nosebleeds? Undoubtedly. But as many a wounded bear will attest, you bet against this trend at your own peril.

Rather than sallying forth and chasing stocks that are already extended from low-risk buy areas, let’s focus on trades in stocks that are just beginning to pop. These breakout trades often attract money that is rotating out of hot stocks that have already made their run and are due for some resting.

I’ve surveyed the landscape and discovered eye candy aplenty. Today’s selections offer exciting breakout setups for spectators looking to get in on the action.

Check out these three breakout trades for a nosebleed market.

3 Breakout Trades in a Nosebleed Market: FedEx Corporation (FDX)

FedEx Corporation

We begin with FedEx Corporation (NYSE:FDX), which suddenly awoke from its slumber last Thursday. The stock has been dithering for months, content with watching the market rally from afar. Its lack of momentum has given traders little reason to get involved … until last week, that is. As the above chart will attest, FDX stock soared above its descending trendline amid a strong rally on Thursday. The pop was followed up by a rousing, high-volume candle that shattered horizontal resistance on Friday.

FDX tagged a new all-time high in the process at $204.89.

Implied volatility has risen alongside the stock, which increases the appeal of short option strategies. Sell the July $190/$185 bull put spread for 75 cents or better. If FDX sits above $190 at expiration, this breakout trade will deliver a 75-cent reward. The risk (and cost) is $4.25. To minimize the damage, consider exiting on a break of $190.

3 Breakout Trades in a Nosebleed Market: Alibaba Group Holding Ltd (BABA)

Alibaba Group Holding Ltd

Alibaba Group Holding Ltd (NYSE:BABA) boasts one of the cleanest-looking trends on the Street. Not only has it developed an uninterrupted series of higher pivot highs and lows, it’s also increasing in momentum. The ramp in demand makes this quite the attractive candidate for bullish trades. BABA stock has consolidated over the past two weeks near record highs. A break above the upper-end of its recent range should deliver a trade-worthy breakout.

Though not as high as Fedex’s, the implied volatility for BABA is elevated enough to consider a short premium play. If you’re willing to bet the stock remains above $115 for the next month, then sell the July $115/$110 bull put spread for 55 cents. You will capture the max reward of 55 cents if BABA sits above $115 at expiration.

The max risk is $4.45 and will be forfeited if the stock falls below $110 by expiration.

3 Breakout Trades in a Nosebleed Market: Salesforce (CRM)

Salesforce.com

Like its predecessor, Salesforce.com, Inc. (NYSE:CRM) finds itself in the midst of a strong uptrend that is increasing in momentum. It too has spent the past week consolidating near all-time highs. With this morning’s pop, it appears CRM stock is staging a breakout attempt. A close above $91.81 will clinch the victory.

To capitalize on continued strength through the summer, buy the Aug $90/$95 call spread for $2.40. If CRM can climb above $95 by expiration, you will capture the max reward of $2.60. The risk is limited to the initial $2.40 cost and will be lost if CRM sits below $90 at expiration.

Note: Tyler Craig is the author of this article. At the time of this writing, Tyler held no positions on any of the aforementioned securities. This article was originally published on June 5, 2017.

 

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