In This Issue:
Dear Momentum Stocks Weekly Subscriber,
The bulls came within spitting distance of clearing the second layers of resistance on Wednesday ahead of today’s Fed decision on interest rates. The action continues to look bullish, and I’m hoping for the best of both worlds — a higher close today and a rise in interest rates. However, I realize most of the suits-and-ties are betting on a market pullback no matter what the Fed decides.
The Dow added 140 points, or 0.8%, to end at 16,739. The blue-chips fell by a six-pack to 16,593 at the start of trading, with support at 16,600 hanging tough. The move and close above 16,600-16,700 split upper resistance at 16,800. A run past this level could lead to 17,000. A drop below 16,600 could lead to a backtest to 16,400-16,350.
The S&P 500 surged 17 points, or 0.9%, to settle at 1,995. The index slipped less than a point to 1,977 and tested support at 1,975-1,970 in the opening minutes. The late-day run to 1,997 tested the second layers of resistance at 1,995-2,000. A push past the latter could lead to 2,020-2,025 over the near term. A drop below 1,970 could lead to 1,960-1,950.
The Nasdaq advanced 28 points, or 0.6%, to close at 4,889. Tech fell below support at 4,850 by two points before reaching a peak of 4,893 ahead of the closing bell. If the bulls crack additional resistance at 4,900 and the 200-day moving average, a short covering rally could ensue to 4,950-5,000. A move under 4,850 again could lead to 4,800-4,750.
The Russell 2000 jumped 9 points, or 0.8%, to finish at 1,175. The small-caps traded to a low of 1,165 shortly after the open, with support holding at 1,160. The rebound to and close at 1,175 cleared resistance at 1,170-1,175 and gets 1,180-1,185 in play. A close above the latter could lead to a run at 1,200. There is risk to 1,150 if 1,165-1,160 fails.
The S&P 500 Volatility Index ($VIX, 21.35, down 1.19) tested a high of 22.94 during the first half hour of trading, with resistance at 23.50-25 holding. The bulls pushed a low of 21.09, and I mentioned that a close below 22.50 would be slightly bullish. A close below 20 today would be even more bullish.
I have updated our current positions below, including a fresh chart for our New Trade in Planet Fitness (PLNT), so let’s go check them out.
From desk to press, futures look like this: Dow (-38); S&P 500 (-6); Nasdaq 100 (-10); Russell (-2).
Momentum Stocks Weekly Play List
All prices given in this update are current as of Sept. 16, 2015. I hereby disclose that I will be participating in the following trade(s).
The Momentum Stocks Weekly Closed Trade Track Record for 2015 is 27-1, for a 96% win rate (144-18, or 89% win rate, overall since the start of 2011).
View the entire list of open and closed trades by clicking here.
Planet Fitness (PLNT, $18.05, up $0.45)
Entry Price: $17.85 (9/16/2015)
Lowered Price from Selling Options: None
Exit Target: $22.00
Return: 1%
Stop Target: $12.00
Action: Near-term resistance is at $18.50-$19. A close below the latter could lead to a run at $20 and the recent IPO high of $19.65. Support is at $17.50-$17.25 if $18 fails to hold.
Planet Fitness offered 13.5 million shares in its early-August debut, with the deal priced at the high end of the suggested $14.00-$16.00 IPO range.
The company runs slick, clean gyms around the country for $10 a month and has a growing member base. Upgrades are available that allow members to use any Planet Fitness location with a friend. For a traveling business person or a couple, this is an added benefit if the local hotels’ facilities aren’t up to snuff.
Earlier this month, the company reported second-quarter earnings of $0.13 a share on revenue of $79 million. Analysts were looking for $0.12 a share on revenue of $77.4 million.
For 2015, Planet Fitness has pegged earnings at $0.47-$0.48 a share on revenue of $314-$316 million. Expectations were calling for $0.46 a share on revenue of $313 million. It also plans to open roughly 200 new franchised units and three new corporate stores for fiscal year 2015.
In late August, there were nine brokerage firms that issued “Buy” or “Overweight” ratings on the stock on the same day (ahead of earnings mind you), with Price Targets ranging from $19-$25.
I will even go a step further. I believe that if the company’s growth is managed successfully, shares could double in two to three years and trade in the mid-$30 range.
Bank of America (BAC, $16.33, up $0.02)
BAC October 18 calls (BAC151016C00018000, $0.05, flat)
Entry Price: $0.45 (8/17/2015)
Exit Target: $0.90
Return: -89%
Stop Target: None
Action: Resistance is at $16.50 and the 200-day moving average. The 50-day moving average is starting to level out, and the 100-day moving average is rising slightly. Support is at $16-$15.75 on a pullback or a break below $16.25.
You can read my full write-up on BAC in the Aug. 17 Issue.
Rave Restaurant Group (RAVE, $10.03, down $0.19)
Original Entry Price (First Position): $13.92 (7/9/2015)
Lowered Price from Selling Options: N/A
Exit Target: $20.00
Return: -28%
Stop Target: $7.00
Original Entry Price (Second Position): $11.70 (8/17/2015)
Lowered Price from Selling Options: N/A
Exit Target: $13.00+
Return: -14%
Stop Target: $7.00
Action: A “death cross” has officially formed, as the 50-day moving average has fallen below the 200-day moving average. There is continued risk to $9.50-$9 on a technical basis, but the fundamentals will still be there in 2016, which is when I expect the company to turn a profit.
The company announced another 28-unit deal in Florida this week, and I have talked about Rave’s plans for 500 Pie Five stores over the next five years. This number could push 750 units on continued deal-making.
Earnings are due out this month. You can read my recent earnings update on RAVE and find out why it remains my No. 1 stock pick in the June 29 Issue.
Limelight Networks (LLNW, $2.35, down $0.08)
Original Entry Price: $4.03 (7/9/2015)
Lowered Price from Selling Options: N/A
Exit Target: $5.00-$6.00
Return: -42%
Stop Target: $2.00 (Stop Limit)
Action: Support is at $2.25 following yesterday’s close below $2.40. Resistance is at $2.40-$2.50.
Rigel Pharmaceuticals (RIGL, $3.28, down $0.05)
Original Entry Price: $3.51 (6/2/2015)
Lowered Price from Selling Options: N/A
Exit Target: $4.00-$5.00
Return: -7%
Stop Target: $2.00 (Stop Limit)
Action: Resistance is at $3.35 and the 100-day moving average. A move above $3.40 could lead to a run at $3.60-$3.80. Support is at $3.10-$3 and the 50- and 200-day moving averages.
You can read my detailed write-up on RIGL in the June 8 Issue.
Flex (FLEX, $11.11, up $0.15)
Original Entry Price: $12.55 (5/19/2015)
Lowered Price from Selling Options: N/A
Exit Target: $15.00+
Return: -11%
Stop Target: $9.00 (Stop Limit)
Action: Shares have moved solidly above their 50-day moving average this week. There is additional resistance at $11.40-$11.50 and the 100- and 200-day moving averages. Support has moved up to $10.75-$10.80.
The company recently purchased NEXTracker for $330 million, and the merger is expected to create productive synergies.
You can read my detailed write-up on Flex in the July 30 Issue.
Psychemedics (PMD, $10.21, flat)
Original Entry Price: $15.67 (5/5/2015)
Lowered Price from dividends: $15.37
Exit Target: $15.75 (Limit Order)
Return: -34%
Stop Target: $7.75 (Stop Limit)
Dividend Yield: 5.6%
Action: Support is at $10, with risk to $9.50-$9. Resistance is at $10.25-$10.50.
Earnings are likely to be released in late October or early November.
Huttig Building Products (HBP, $3.10, down $0.05)
Original Entry Price: $4.00 (8/13/2014)
Lowered Price from Selling Options: No options available
Exit Target: $6.00+
Return: -23%
Stop Target: $2.00 (Stop Limit)
Action: Support is at $3, followed by $2.90. Resistance is at $3.15-$3.25 and the 50-, 100- and 200-day moving averages.
Earnings are likely to be released in late October or early November.
Rambus (RMBS, $11.71, down $1.49)
Original Entry Price: $17.83 (11/14/2011)
Lowered Price from Selling Options: $16.38
Exit Target: $15.00+
Return: -29%
Stop Target: $9.00
Action: Rambus updated Wall Street on its 2015 numbers late on Tuesday afternoon, and shares paid for it Wednesday. I have followed the company for over a decade, and I have said that it has a history of sandbagging its estimates. However, this time is a little different, as its revenue mid-point numbers were better than estimates.
For 2015, the company said earnings would come in between $0.54-$0.65, with a midpoint at $0.60, rounded up. The suits-and-ties had forecasted a profit of $0.61 a share. Rambus forecasted this year’s revenue at $300-$315 million, with a midpoint of $307.5 million, versus estimates for $305.5 million.
I’m always talking about growing revenues, as it is a quick way to see if a company is moving in the right direction instead of looking at a penny beat or miss on earnings per share. Rambus has a history of litigation issues and, while those are mostly behind it, the company is still evolving.
The company plans to make its own chips and has signed a number of licensing deals instead of fighting the nuances of patent infringements in court. The stock is still a work in progress and has been for years, but I still see Rambus as a takeover target in 2016.
Resistance is at $13.75, followed by $14 and the 100-day moving average. Support is at $13.50-$13.25 and the 50-day moving average.
We previously sold to open (wrote) the RMBS December 20 calls for $1.45 on Nov. 14, 2011 to reduce the cost basis to $16.38.
Trades on Hold (7): These are trades that are still open in the portfolio but are down from the original recommended price. These trades are on “hold” and are not a buy until I bring back coverage of the stock. This means I would not open any new positions. I’m still keeping track of the trades and will record the results accordingly when a trade closes. I do not recommend adding to these positions or opening new positions.
Special Notice: The September options expire tomorrow.
I will be closing four trades at Monday’s open. I will provide the details on which trades I am closing from past years for losses and tax write-offs in Monday’s Issue.
AKS Steel Holding (AKS), DryShips (DRYS), Bebe Stores (BEBE) and Vivus (VVUS) are older positions that aren’t likely to come back for years. I could continue to write call options against the trades but I want to move on from these positions. I could have one or two new trades this week, depending on market conditions, as I will be replacing these trades with fresh ideas.
Discovery Laboratories (DSCO, March 2015) — Continue to hold.
AKS Steel Holding (AKS, May 2011) — We sold to open (wrote) the AKS September 6 calls (AKS150918C00006000) on 4/30/2015 for 40 cents. Continue to hold.
DryShips (DRYS, January 2011) — We sold to open (wrote) the DRYS September 1 calls (DRYS150918C00001000) on 4/30/2015 for 5 cents. Continue to hold.
Bebe Stores (BEBE, February 2012) — We sold to open (wrote) the BEBE September 4 calls (BEBE150918C00004000) on 4/30/2015 for 35 cents. Continue to hold.
Vivus (VVUS, July 2012) — We sold to open (wrote) the VVUS September 4 calls (VVUS150918C00004000) on 4/30/2015 for 10 cents. Continue to hold.
Zynga (ZNGA, March 2014) — We sold to open (wrote) the ZNGA September 3 calls (ZNGA150918C00003000) on 4/30/2015 for 16 cents. Continue to hold.
Galena Biopharma (GALE, February 2014) — We sold to open (wrote) the GALE October 2 calls (GALE151016C00002000) on 4/30/2015 for 15 cents. Continue to hold.
Trade on!
Rick Rouse
Editor
Momentum Stocks Weekly
