The 30% rally we've seen since the March 23 low is an encouraging sign. We should be ready to play it if its momentum is confirmed. Remember, the stock market looks many months into the future so a rally now suggests that the market thinks things will get better, if not back to normal, soon enough.
After stocks plunged nearly 40% from their all-time highs in February, it's tempting to call a bottom and dive right back in now that stocks have gained some ground.
But history shows that bear markets often feature short rallies before stocks fall even more. Money Morning's trading experts are warning there could be more downside risk ahead.
That means it's worth moving cautiously right now and not getting over your skis. Dumping all your cash into the markets right now could backfire.
But there's opportunity to make some healthy profits during these rallies too.
We've pinpointed four stocks that might pop the highest. These aren't set-it-and-forget-it types of investments, but simply stocks that were flying high before the crash that have the best chance of surging back to those highs. And enterprising traders can take advantage of that.
But before we reveal them, it is important to understand why they are likely to offer strong rebounds and strong profits.
In the stock market, there is a good deal of something called inertia. Just like in physics, stocks that are in motion tend to stay in motion. And that means leaders tend to remain leaders.
Put another way, the trend is your friend.
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But now that all stocks have fallen sharply, what exactly is a leader? It's a good question, and it has a simple answer. Leaders are those stocks that were strong before the decline and held up fairly well during the decline. And they are also early leaders when the market begins to bounce.
They were strong before, and investors believe they have the right stuff to thrive when the market turmoil is over.
And now that we see the light at the end of the tunnel, after we've all be at home streaming movies, connecting via chat software, and getting our food delivered, what do you think the world will look like in a few months?
We are likely to see a marked change in the business landscape favoring companies that got us through the crisis and not favoring those that were crushed through the economic shutdown.
That's why these momentum stocks have such appeal right now. They are in what will be some of the hottest industries we'll see once this crisis is over...
The 4 Stocks to Buy When the Rally Solidifies
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Money Morning's options trading specialist, Tom Gentile, made a list of stocks that he thinks are well positioned to soar and create some spectacular trading opportunities. They were all leaders heading into the decline, and as you will see, they are all in businesses that are going to do well as we all learn to live in the post-virus world.
Here they are:
- Mastercard Inc. (NYSE: MA) has become an online payments leader, with its tentacles in all aspects of the Internet and traditional commerce.
- Tesla Inc. (NASDAQ: TSLA) is on the forefront of battery technology and autonomous transportation. Although still a bit on the science fiction side, theoretically, a Tesla vehicle can pick up and deliver products in a contactless manner.
- NVIDIA Corp. (NASDAQ: NVDA) designs high-end graphics processors used in everything from gaming to artificial intelligence to cryptocurrency mining and cloud computing. The cloud has gotten even more interest in a work-at-home world.
- Paycom Software Inc. (NASDAQ: PAYC) provides comprehensive, cloud-based human capital management (HCM) software solutions that businesses need to manage the complete employment life cycle from recruitment to retirement.
Tom says that these are all shorter-term, 30-day performers and suggests buying shorter-term, 30-day options or option spreads on these stocks.
Again, these aren't the kind of investments you can leave unattended. Some of these might be worth owning long-term, but for now we're looking at the short-term opportunity. If stocks pull back again, you might want to duck out of these positions and wait for the next rally.
But one thing is clear: Whether it's short-term, long-term, or both, the market is currently ripe with opportunity.
And to get even more of Tom's recommendations in real time, make sure to check this out...
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