Buy the Dip on These 2 Blue Chips

Visa and Microsoft have pulled back to historically bullish trendlines

Managing Editor
Aug 7, 2019 at 12:22 PM
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The two best Dow stocks in 2019 have been Visa Inc (NYSE:V) and Microsoft Corporation (NASDAQ:MSFT). However, the blue chips have not been immune to the broad-market sell-off in recent weeks. The good news is that these pullbacks could be short-lived, if history is any indicator. 

Looking at Visa first, the equity has crept back to its 80-day moving average, after a lengthy period above it, defined for this study as being above the trendline 60% of the time in the last two months, and eight of the previous 10 trading days. Schaeffer's Senior Quantitative Analyst Rocky White notes that the eight previous run-ins with the 80-day have resulted in an average one-month gain of 4.6%, with six of the eight returns positive.

Daily Stock Chart V

From its current perch at $173.29, a pop of similar magnitude would put Visa stock around $180, just south of its July 29 record high of $184.07. This would also fill the bear gap from Monday's sell-off, which saw V breach its 80-day trendline on a closing basis for the first time since late January. 

Options traders have focused on puts lately. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), V's 10-day put/call volume ratio of 1.25 ranks 3 percentage points from an annual high. This indicates the rate of put buying relative to call buying has been quite accelerated the past two weeks.

Microsoft stock has also pulled back to its 80-day moving average. According to White, 11 similar meet-ups from recent years have yielded an average one-month gain of 6.4%, with 10 of the 11 returns positive. Trading at $134.69 at last check, a move higher of similar magnitude puts MSFT at $143, barreling past its July 26 all-time high of $141.68. Year-to-date, the tech titan is up 32%. 

Daily Stock Chart MSFT

Microsoft calls are all the rage right now. ISE/CBOE/PHLX data shows that 144,354 calls changed hands the last 10 days, compared to 67,650 puts. The resultant call/put volume ratio ranks in the elevated 73rd annual percentile, meaning not only that calls have doubled puts in the past two weeks, but the rate of call buying relative to put buying has been quicker than usual.


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