The bulls wrapped up their sixth-straight week of gains and dominated November’s action with all-time highs. The market clearly has momentum, and December is historically a bullish month. However, the Russell 2000 did finish slightly lower by less than a point and remains the wild card.

At some point, the bears could make an appearance on year-end tax selling, perhaps this week, but my fluff targets from February are clearly in play following Friday’s performance in Tech.

The Dow gained half of a point to end flat at 17,828 on Friday. The blue-chips came within a point of setting a fresh all-time intraday high following Friday’s push to 17,893 by mid-day. The last hour fade to 17,807 held support at 17,800-17,600. The bulls are still on track for a run past 18,000 once 17,900 is cleared.

INDU12114

The S&P 500 fell 5 points, or 0.3%, to end at 2,067. The index traded to an all-time intraday high of 2,075 but failed to hold this level into the end of the shortened session. A close above this level keeps my year-end target of 2,100 in the mix. Support is at 2,050 on a pullback, with wiggle room to 2,040.

SPX12114

The Nasdaq added 4 points, or 0.1%, to close at 4,791. Tech traded into my year-end 4,800-5,000 target zone after racing to a high of 4,810 an hour after the start of trading. It was another 14-year high before the bears showed up to put a 1-point dent in the action. The low of 4,786 easily held 4,775-4,750, which is trying to serve as near-term support. Backup is at 4,700-4,675.

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The Russell 2000 tanked 17 points, or 1.5%, to finish at 1,173. The drop in the small-caps back below 1,175 was discouraging. The index traded into the red all session long on Black Friday but held 1,170 after the bears pushed 1,172. There is additional help at 1,160-1,150 on continued weakness, while a close above 1,180 keeps 1,200 in play.

RUT12114

The S&P Volatility Index ($VIX, 13.33, up 1.26) made some noise after popping 10% and kissing 13.49. The bulls held 13.50 by a whisker, and 15 is a bigger battle for the bears. The closes below 12.50 on Tuesday and Wednesday of last week were the first since mid-September, and that’s the level the bulls need to get back under.

VIX12114

The chart below shows November’s gains and the slight disappointment by the small-caps.  Overall, the nearly 3% gain was impressive and bodes well for December.

RRMO11201

The Monday/Friday closes continue to be bullish and are a sign that money is still moving into the market. I have been talking about the “sideline money” that might get put to work on fresh highs, and bullish Monday/Friday closes signal strength. The Dow has closed higher the past three Mondays and in five of the past six. The bears won five of six Mondays from mid-September through the first two weeks of October.

RRMO21201

The bulls have won the past two Dow Friday closes and six of seven.  Even more impressive is the performance since mid-September as the Dow has finished higher on nine of the past 11 Friday sessions.

RRMO31201

The bulls have won the past two Friday Dow closes and six of the last seven. Even more impressive is the performance since mid-September, as the Dow has finished higher on nine of the past 11 Friday sessions.

Oil and energy stocks got whacked on Black Friday following OPEC’s decision not to cut production following its Thursday meeting. Friday’s volatility was evened out by the rally in retail and the airline stocks.

Big bets continue to be made on lower prices following OPEC’s call to maintain the current production levels of 30 million barrels a day. Last month, I talked about Brent oil possibly pushing $75-$70, and Friday’s debacle reached the lower end of my near-term projection. A drop into the $60s is nearly a done deal, but there could be a rebound to $73.50-$75 at some point this month.

BRENT12114

The financial stocks are holding up well, as the Financial Select Spiders ($XLF, $24.40, up $0.02) continue to set fresh highs. Friday’s peak reached $24.51, and I have mentioned that the sector needs to stay strong to support the current rally. A run to $25-$26 could come this month, and I have talked about $30 tripping at some point in 2015. Near-term support is at $24-$23.75 followed by the 50-day moving average.

XLF12114

I will be updating my chart work from February this coming weekend and will provide a more detailed outlook for December and year-end next week.

The Wall Street pros that have missed this year’s rally and are underperforming are still biting the bullet to get into the market. I’m not sure if they will get that chance, but a pullback could also give us an opportunity to start new positions at discounted prices.

November was a beautiful month to take profits following the mid-October lows and run to all-time highs again. I believe there will be some excellent opportunities for new trades during the next few weeks, but I want to protect profits if the bears do make some noise this week or next.

From desk to press, futures are shaping up like this: Dow (-63); S&P 500 (-9); Nasdaq 100 (-11).

Chapter 1. Momentum Stocks Weekly Play List

All prices given in this update are current as of Nov. 28, 2014.

The Momentum Stocks Weekly Closed Trade Track Record for 2014 is 29-10, for a 74% win rate (114-17, or 87% win rate, overall since the start of 2011).

To download the most current Momentum Stocks Weekly returns of closed positions in Excel format, click here.

 

Discovery Laboratories (DSCO, $1.57, up $0.02)

Sold to open the DSCO April 2 calls (2015) (DSCO150417C00002000, $0.35, flat)

Original Entry Price:  $1.60 (11/11/14)

Lowered Price from selling options:  $1.20

Exit Target:  $2

Return:  31%

Stop Target:  None

Action:  Shares tested near-term support at $1.50 to start the week before Friday’s run to $1.60.  Resistance is at $1.65-$1.70.

On Nov. 11, I suggested buying DSCO at $1.60 while selling to open the DSCO April 2 calls for 40 cents.  This lowered the cost basis of the trade to $1.20.  If shares are “called-away” at $2 by next April, the trade will make 67%.

DSCO12114

 

Psychemedics (PMD, $15.08, up $0.12)

Original Entry Price:  $14.45 (11/3/14)

Lowered Price from dividends:  N/A

Exit Target:  $20+

Return:  4%

Stop Target:  Raise from $10 to $14.50 (Stop Limit)

Dividend Yield:  4.2% (60 cents/ 15 cents quarterly)

Action:  Raise the Stop Target from $10 to $14.50 and make it a Stop Limit (i.e., place a limit order to close PMD at $14.50).

The low following the 15-cent dividend payout was $14.52 and a drop below this level could lead to $14 and the major moving averages.  Resistance is at $15.50-$16.

Read my full write-up on PMD from Nov. 3 for more details on why I like this company.

PMD12114

 

Flextronics International (FLEX, $11.09, flat)

Original Entry Price:  $9.12 (10/21/14)

Lowered Price from Selling Options:  N/A

Exit Target:  $12+

Return:  22%

Stop Target:  $10.85 (Stop Limit)

Action:  Friday’s low checked in at $11.02.  We have a Stop Limit of $10.85 in place.

Resistance is at $11.25-$11.50 and a close above the latter should get the 52-week high of $11.83 in play.  Support is at $10.75 with backup at $10.50 and the 100-day moving average.

FLEX12114

 

Aruba Networks (ARUN, $18.71, down $0.28) Covered Call Trade

Original Entry Price:  $19.24 (10/17/14)

Lowered Price from Selling Options:  $18.04

Exit Target:  $25+

Return:  4%

Stop Target:  Raise from $18.50 to $18.60 (Stop Limit)

Action:  Raise the Stop Limit from $18.50 to $18.60.  Friday’s low touched $18.65.

The company recently beat Wall Street’s estimates but offered weak guidance and I want to protect profits on further weakness.

On Oct. 17, 2014, I recommended buying shares at $19.24 and selling to open the ARUN November 20 calls for $1.20 to lower the cost basis to $18.04.

ARUN12114

 

Pizza Inn Holdings (PZZI, $6.82, up $0.01) Stock Trades

Original Entry Price:  $8 (8/13/14)

Lowered Price from Selling Options:  No options available

Exit Target:  $12

Return:  -15%

Stop Target:  $5

 

Original Entry Price:  $8.10 (10/11/13)

Lowered Price from Selling Options:  No options available

Exit Target:  $12+

Return:  -16%

Stop Target:  $5

Action:  Shares held near-term support after testing $6.70 on Friday and holding $6.75.  There is backtest support at $6.50.  A close above $7 would be bullish.

Click here to read my in-depth commentary and write-up on Pizza Inn.

PZZI12114

 

Huttig Building Products (HBP, $3.29, down $0.10) Stock Trade

Original Entry Price:  $4 (8/13/14)

Lowered Price from Selling Options:  No options available

Exit Target:  $6+

Return:  -18%

Stop Target:  $2 (Stop Limit)

Action:  Thursday and Friday’s low reached $3.27 with short-term support at $3.25 holding.  There is additional risk to $3.  A close above $3.50 and the 50-day moving average would be bullish.

 

Previous comments:

This is a small company with a big presence in the housing industry and a market-cap just south of $100 million.  Huttig has been around for over 100 years and there is little Wall Street coverage with only 1 analyst following the stock.

This is a “cheap” way to play the housing sector with a quality stock.  Despite the fits and starts the industry has been going through the past few years, this is a solid company with an improving balance sheet.

HBP12114

 

Limelight Networks (LLNW, $2.73, down $0.08) stock trade

Original Entry Price:  $3.00 (6/9/14)

Lowered Price from Selling Options:  N/A

Exit Target:  $5

Return:  -9%

Stop Target:  $1

Action:  Near-term support at $2.75 is holding with $2.50 serving as backup.  Friday’s high reached $2.88 and resistance is at $3.

 

Previous comments:  The company’s CEO picked up 25,000 shares at $2.61 and has a million shares in his coffer.  Insider buying shows faith in the stock and I continue to like shares at current levels.

Read about why I feel Limelight is a takeover target by clicking here.

LLNW12114

 

Trades on Hold:  AKS Steel Holding (AKS, May 2011), DryShips (DRYS, January 2011), Rambus (RMBS, November 2011), Bebe Stores (BEBE, February 2012), Vivus (VVUS, July 2012), Zynga (ZNGA, March 2014), Galena Biopharma (GALE, 2014)

Trade on!

Signed

Rick Rouse
Editor
Momentum Stocks Weekly