Equities are kicking off 2022 with a volatile trading session. Though the intraday action has been whippy today, I’m finding several tempting targets for this week’s edition of our top stock trades.
As is customary, I favored those with the cleanest price patterns and most timely entry points.
This week’s list is diversified. First up is a semiconductor juggernaut whose share price is waking up from a nine-month slumber. The second is a telecom whose fortune looks to be turning. The third is an energy stock blasting through resistance that should benefit from continued strength from crude oil.
With that, here are the picks:
After the usual stroll through each chart, I’ll share an intelligent way to capitalize using options.
3 Top Stock Trades for the Week: Taiwan Semiconductor (TSM)
Taiwan Semiconductor is making up for lost time today. Its share price is up 7.3% amid heavy accumulation. The relative strength marks a decisive change in character.
TSM stock was stuck in a range last year for about nine months, even as other heavy hitters in the chip space were climbing to new heights. However, with today’s pop, Taiwan Semi is officially breaking out.
Taking out short-term resistance is one thing. Breaching a nine-month major ceiling is quite another. They say, “the longer the base, the higher in space” to describe the bullish potential when lengthy trading ranges finally end. And I think it has relevance to TSM here. Last year’s peak of $142.20 is my upside target for this breakout.
While the looming quarterly report on Jan. 13 could throw a wrench into the chart, I’m not too worried about earnings. Investors have recently reacted well to other prominent players in the industry, and I think they’ll show similar excitement for TSM.
The Trade: Buy the February $130/$140 call vertical for $3.15
You’re risking $3.15 to make $6.85.
Ever since Verizon finally stuck it to shorts during the epic Dec. 16th rally, I’ve been waiting to see if we’d get a second act. Unfortunately, after months of trending lower, one upswing isn’t enough to turn the tide. We need upside follow-through for the new potential uptrend to be tradeable.
The pullback that’s been forming over the past two weeks has seen buyers try to return, but so far, their efforts have been unpersuasive.
But I’d be lying if I said I wasn’t impressed by Monday’s movement so far. Shares are up nearly 1% and holding the 50-day moving average. The rising 20-day moving average is also lending a hand here. What’s more, AT&T (NYSE:T), which staged a similar reversal on Dec. 16, is zipping 3% today, so telecoms across the board are seeing some love here.
Because VZ stock is just now forming a pivot low, the reward-to-risk ratio for new entries is enticing. Implied volatility is extremely low, making long calls an excellent way to go.
The Trade: Buy the February $50 call for $2.50.
The risk is limited to $2.50, and the reward is unlimited.
3 Top Stock Trades for the Week: Schlumberger (SLB)
Energy stocks are off to a blazing start for 2022. The Energy Sector ETF (NYSEARCA:XLE) is up 2.6% in early-morning trading, making it the best performing sector on the board. Among the top holdings, Schlumberger is jumping 4.5%, and it has a clean chart pattern for new trades.
In addition, prices are breaking both a horizontal resistance level and the 50-day moving average. This officially ends the two-month downtrend and makes SLB the third and final idea for this week’s stock trades.
Now that the path of least resistance has shifted higher, bulls have a green light to play. The low share price makes naked puts an obvious idea, but the premiums aren’t that great right now. As such, I prefer buying options over selling them.
The Trade: Buy the February $30/$35 bull call spread for $1.90.
You’re risking $1.90 to make $2.10 if prices rise past $35 by expiration.
On the date of publication, Tyler Craig was LONG TSM and VZ. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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