Dear Momentum Stocks Weekly Subscriber,
The bulls posted their second-straight win on Wednesday and showed some follow-through from Tuesday’s takeoff. The bears tried to hold the second layers of resistance, but they failed for the most part, with the VIX closing right at the 12.50 level.
The Dow soared 121 points, or 0.7%, to settle at 17,751. The blue-chips made a run to resistance at 17,800 after reaching a high of 17,776, but they closed slightly below the 200-day moving average at 17,760. A pop past the aforementioned levels would be bullish for a run at 18,000-18,100. Support is at 17,600, with 17,400-17,350 serving as backup.
The S&P 500 gained 15 points, or 0.7%, to end at 2,108. The index cleared resistance at 2,100 and the 50-day moving average following a run to 2,110 late in the session. The bulls held this level into the close, but they face additional hurdles at 2,115-2,125. A move past the latter could lead to fresh all-time highs north of 2,135. Support is at 2,100-2,090 on a pullback.
The Nasdaq advanced 22 points, or 0.4%, to finish at 5,111. Tech opened higher at 5,097 and cleared resistance at 5,100 on the open. The backtest to support at 5,075 and the 50-day moving average afterwards reached 5,080. The index pushed a high of 5,117 following the Fed’s statement. Fresh resistance is at 5,125-5,150, and a move above the latter will likely lead to a retest of 5,200.
The Russell 2000 added 5 points, or 0.4%, to close at 1,229. The small-caps opened lower and traded down to 1,220 before rebounding to reach 1,228. Near-term resistance at 1,225-1,230 held into the close, and there are additional hurdles at 1,240-1,250. A close back below 1,220-1,215 and the 200-day moving average ahead of the weekend would be a bearish development heading into August.
The S&P 500 Volatility Index ($VIX, 12.50, down 0.94) fell 7% to 12.50 following the opening pop to 13.59. The VIX spiked to a low of 11.85 during yesterday’s Fed announcement and nearly tripped our 11.50 green-light target that would indicate fresh highs could come into play. The bulls held the 13.50 level, while the bears held the 12.50 level, technically. A close above or below these levels could influence trading during the rest of the week.
I have been waiting for further confirmation of upside momentum this week, as I mentioned that a summer rally could follow the bounce off of the lows. While I have wanted to go long on a few more stocks, I also realize that the current rally could fizzle, and there is still the possibility that the ongoing trading range will continue.
From desk to press, futures look like this: Dow (-8); S&P 500 (-1); Nasdaq 100 (+4); Russell (-2).
Momentum Stocks Weekly Play List
All prices given in this update are current as of July 29, 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 25-0, for a 100% win rate (142-17, or 89% win rate, overall since the start of 2011)
View the entire list of open and closed trades by clicking here.
Rapid7 (RPD, $23.35, down $1.67)
Original Entry Price: $24.35 (7/28/2015)
Lowered Price from Selling Options: None
Exit Target: $27.00-$30.00
Return: -4%
Stop Target: $20.00
Action: Shares traded to a high of $25.49 on Wednesday before slipping nearly 7% into the close. Short-term support is at $24. Resistance is at $25-$25.50.
Ohr Pharmaceutical (OHRP, $3.07, down $0.10)
Original Entry Price: $3.16 (7/28/2015)
Lowered Price from Selling Options: None
Exit Target: $6.00+
Return: -3%
Stop Target: $1.00
Action: The company recently announced positive Phase-2 trials for the treatment of the wet form of age-related macular degeneration. In short, the therapy of wet-AMD could improve the visual acuity for people suffering with their eyesight.
As with most unproven biotech companies, Ohr Pharmaceutical is losing money, so the fundamentals aren’t there yet. In May, the company reported a loss of $3.4 million.
Shares have fallen from a 52-week peak of $12.31 that triggered in early March to a low of $2.02 earlier this month. The rebound back above $3 looks promising, although there is still risk to $2.
Shares were at $8.73 in late March and tanked to $2.74 following what was then disappointing data for its wet-AMD therapy.
One brokerage firm lowered its price target on OHRP from $25 to $15 following the news in March. Another outfit downgraded the stock to “Neutral” from “Buy” with an $8 price target. However, another brokerage firm reiterated its “Buy” rating and kept a $34 price target on the stock following the drop below $3.
In early April, it was reported that a 6% passive stake was taken in Ohr Pharmaceutical by a company called Broadfin. Shares closed at $2.72 on the announcement.
On July 13, shares surged from $2.27 to close at $3.69 following updated news on its wet-AMD therapy. Volume exceeded 45 million shares. The stock reached $4.34 three days later before the recent pullback to $2.88.
The risk/reward setup looks compelling at current levels. There is only $1 of downside risk to support and a little over $3 overall, with the potential of a run to $8 or $30.
While I would like to see a run to double-digits from current levels, I have set a more conservative price target of $6. I still consider this a “trading” stock because the company is losing money, and I will protect profits if the position makes a double-digit gain. However, I hope this will be a longer-term position that returns triple digits.
Limelight Networks (LLNW, $3.52, down $0.05)
Original Entry Price: $4.03 (7/9/2015)
Lowered Price from Selling Options: None
Exit Target: $5.00-$6.00
Return: -13%
Stop Target: $3.00
Action: A close below $3.50 would be a bearish development that could lead to $3.35-$3.25 and the 200-day moving average. Resistance is at $3.75-$3.80 and the 100-day moving average.
I have a price target of $5-$6 over the next six to 12 months. The company received a takeover offer north of $6 last summer. I’m expecting another takeover attempt at some point this year or next, as the content-delivery market (CDN) remains hot.
Rave Restaurant Group (RAVE, $12.48, up $0.80)
Original Entry Price: $13.92 (7/9/2015)
Lowered Price from Selling Options: None
Exit Target: $20.00
Return: -10%
Stop Target: $10.00
Action: Pie Five Pizza announced another new development deal that will add an additional 25 locations to its backlog. I have talked about the company opening 500 stores over the next five years, but that growth rate is changing.
HCW Development is Pie Five’s latest partner, as they have signed on for 25 locations in Branson and Springfield, Missouri, Tucson, Arizona and Albuquerque, New Mexico. The first unit is scheduled to open in Branson in early 2016.
Despite the news, shares sank to a low of $11.51 on Tuesday. Support at $11.50 held, but there is additional risk to $11 and the 200-day moving average on a close below this level. Hopefully, the pop back above $12 yesterday marked a bottom, but there is further resistance at $12.75 and the 50-day moving average.
You can read my recent earnings update on RAVE and why it remains my No. 1 stock pick from the June 29 Issue.
Rigel Pharmaceuticals (RIGL, $2.85, down $0.08)
Original Entry Price: $3.51 (6/2/2015)
Lowered Price from Selling Options: None
Exit Target: $4.00-$5.00
Return: -19%
Stop Target: $2.00
Action: Shares closed below near-term support at $2.90 and the 200-moving average. There is additional risk to $2.75-$2.70. Resistance is at $2.90-$3, followed by $3.25 and the 50-day moving average.
You can read my detailed write-up from the June 8 Issue here.
Dot Hill Systems (HILL, $5.95, down $0.15)
Original Entry Price: $7.10 (5/21/2015)
Lowered Price from Selling Options: N/A
Exit Target: $14.00-$15.00
Return: -16%
Stop Target: $5.00
Action: Continued closes below $6-$5.75 could lead to a backtest to $5.50-$5.25 and the 200-day moving average. Resistance is at $6.25 and the 100-day moving average.
Earnings are due out Aug. 6. Wall Street is looking for a profit of $0.06 a share on revenue of $60.64 million.
You can read my full write-up on HILL in the May 26 Issue.
Flex (FLEX, $10.94, up $0.18)
Original Entry Price: $12.55 (5/19/2015)
Lowered Price from Selling Options: None
Exit Target: $15.00+
Return: -13%
Stop Target: $10.00
Action: Resistance is at $11, followed by $11.40-$11.50 and the 200-day moving average. Support is at $10.50-$10 on continued drops below $10.75.
The company matched earnings expectations of $0.23 a share last week. However, revenue was shy at $5.57 billion versus expectations for $5.89 billion. Flex offered current quarter numbers of $0.22-$0.28 a share on revenue of $5.9-$6.5 billion. Wall Street has a forecast for $0.25 a share on revenue of $6.23 billion.
I still like the stock at current levels despite the slight revenue miss. Hopefully, the company’s numbers come in at the top end of their given range when second-quarter earnings are announced in October.
Psychemedics (PMD, $11.73, down $0.38)
Original Entry Price: $15.67 (5/5/2015)
Lowered Price from Selling Options and dividends: No options available
Exit Target: $15.75 (Limit Order)
Return: -25%
Stop Target: $7.75 (Stop Limit)
Dividend Yield: 5.5%
Action: Support is at $11-$10. Resistance is at $12-$12.50.
Huttig Building Products (HBP, $3.13, up $0.06)
Original Entry Price: $4 (8/13/2014)
Lowered Price from Selling Options: No options available
Exit Target: $6.00+
Return: -22%
Stop Target: $2.00 (Stop Limit)
Action: Resistance is at $3.20-$3.25 and the 50-, 100- and 200-day moving averages. A move above the latter would be bullish. Support is at $3.10-$3.
Rambus (RMBS, $13.33, down $0.20)
Original Entry Price: $17.83 (11/14/2011)
Lowered Price from Selling Options: $16.38
Exit Target: $15.00+
Return: -19%
Stop Target: $9.00
Action: Support is at $13-$12.75. A close below the latter could lead to$12.50 and another retest of the 200-day moving average. Resistance is at $13.50-$13.75 and the 100-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.
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
