The bulls extended their winning streak to seven-straight weeks, but tech lagged and finished lower last week. The Dow and S&P 500 showed strength, and the small-caps rebounded to end the week in positive territory.
The bulls are in great shape to trip a couple of my year-end price targets from February. The Nasdaq and S&P 500 are just about there, but my Dow and Russell 2000 targets will likely have to wait until 2015. Of course, the bears always have to be respected, but the winter hibernation could continue as Wall Street plays catch up.
The Dow added 58 points, or 0.3%, to end at 17,958 on Friday. The blue-chips held positive territory throughout the session and made a run to an all-time intraday high of 17,991. I have talked about fluff up to 18,250 over the near-term if the bulls do trigger 18,000. Support at 17,800 has been solid and would need to hold on a pullback. There is additional help at 17,600, and a close below this level would signal a possible trend change. The Dow gained 130 points, or 0.7%, for the week.
The S&P 500 advanced 3 points, or 0.2%, to finish at 2,075. The index held steady for much of Friday’s session and reached a peak of 2,079 — another all-time high. The bears tried to ruin the party late in the day, but the 1-point drop to 2,070 was hardly noticed. There is risk to 2,060-2,050 on a close below this level, but the bulls are still on track to trip my year-end target of 2,100. For the week, the S&P was higher by 8 points, or 0.4%.
The Nasdaq jumped 11 points, or 0.2%, to settle at 4,780. Tech made another run at 4,800 and traded to a high of 4,788 before a late day fade back to even. The bulls held positive territory by a fifth of a point and, more importantly, the index closed above 4,775. The bears came close to cracking support at 4,750-4,725 last week, but the higher highs and lower lows were a bullish sign and keep my year-end target of 4,800-5,000 in play. For the first week of December, the Nasdaq lost 11 points, or 0.3%.
The Russell 2000 gained 9 points, or 0.8%, to close at 1,182. The small-caps got off to a slow start on Friday after kissing 1,972, but the rebound to 1,185 and close above 1,180 eased my concern. Near-term support at 1,175-1,170 is still shaky, but the test and hold to 1,150 last Monday might have been the dip Wall Street was supposed to buy. For the suit-and-ties that didn’t, they may have missed a train that is possibly headed past 1,200. For the week and month, the Russell 2000 added 9 points, or 0.8%.
The S&P Volatility Index ($VIX, 11.79, down 0.59) fell 5% as the bulls put a little more distance between themselves and the 12.50 level. I have talked about a test to single-digits coming this year, and the July low reached 10.28. The VIX will become a more prominent subject in the coming weeks, as the slick talking pros say it’s too low, but they have gotten it wrong all year.
Longer-term subscribers know that the VIX has been and continues to be one of my best trading tools for figuring out market direction. It has also been a great indicator for keeping my emotions in check. The bears will be gunning for a rebound past 12.50 this week, and there would be additional risk to 13.50 if cleared. I would not actively seek put options on the indexes until the VIX clears and holds 20 for several sessions. Here is a look at the 10-year chart for the VIX.
The Dow has triggered 35 all-time record highs this year, and the S&P 500 has triggered 49. It is important to keep in mind that, in 2013, the Dow tagged 52 all-time highs. Last week was mixed and, while I mentioned that there could be a slight pullback, it was an overall bullish week. I would love to see the Dow make another highs this year, and there are exactly 17 trading days left in 2014. Before I put the horse, or, should I say bulls, in front of the cart, let’s see what the charts are telling us.
The S&P 500 came into the year at 1,848. The year-end price targets from the top brokerage firms ranged from 1900-1,975 when I dug up research in February. At the time, I found nearly a dozen brokerage firms in the 1,900 range. The average for much of Wall Street was 1,950, for a gain of 6%.
Goldman Sachs (GS, $195.45, up $3.50) set a target at 1,900 and penciled in a 3% move. An analyst from Bank of America (BAC, $17.68, up $0.47) estimated that the S&P 500 might trigger 2,000.
Morgan Stanley (MS, $37.24, up $0.45) and Oppenheimer tried to be slick by guessing 2,014 as a year-end target for the S&P. This would represent a 9% gain for the year. The high estimate came from an analyst out of JPMorgan (JPM, $62.70, up $1.32) who penciled in 2,075, a move of 12%. My year-end target in February was 2,100.
In July, Goldman upped its year-end target for the S&P 500 to 2,050, and others followed suit and now have price targets of 2,100-2,200 going into year-end and 2015. I consider this “cheating,” as they got a second guess, and the talking heads fail to mention their original targets, but at least they jumped on the bulls’ bandwagon. However, it felt like everyone, and I mean everyone, jumped off in September and October and said the highs were in. The pullback was scary, but the chart work I do every week kept me calm and focused. While I did take a few hits on bullish trades, I wasn’t aggressively seeking “short” positions and said bear market rallies die in October.
Most analysts predict 5% up-years, as they are too lazy to do the chart work, though some may go as high as the 7%-8% range. Following 2013’s gain of nearly 30% for the S&P, none of them believed a double-digit return was in store for this year. At current levels, the S&P 500 is up 12% year-to-date.
If 2015 goes well, a run to 2,300-2,400 could come for the S&P, but I don’t expect it to be smooth sailing. I like to wait until January’s action is finished and will then make my official “educated guess” in February on where the index will be by year-end 2015. However, you heard it here first.
For the knuckleheads who say the Dow is dead and needs to be abolished, it’s not going to happen. While the index may be in need of another “makeover,” the Dow Jones Industrial Average represents 30 stocks deemed as blue-chips. The stock market’s history started with the Dow, and the NYSE remains one of the most prestigious exchanges in the world.
The Dow has ended higher over the past five Decembers, and the month represents the best average gain for the year at 1.4%. The blue-chips have closed in positive territory in 84 of 117 years for a success rate of over 70%. For the history buffs, 1903 was the best monthly win for the blue-chips, as they posted nearly an 11% gain. The worst December came in the 1931 on a bear attack that resulted in a nasty 17% selloff.
I had penciled in a possible run to 19,000 for the Dow by year-end, but that target will likely have to wait until 2015 to trigger, with fluff up to 19,500-20,000.
International Business Machines (IBM) has tanked 12% this year, and Chevron (CVX) is down 10% year-to-date (YTD). Other YTD Dow laggards include Exxon Mobile (XOM) and General Electric (GE), which are both down 7%, and AT&T (T) and Boeing (BA) have lost nearly 4%.
These blue-chips will be classified as the “Dogs of the Dow” heading into 2015. This theory can be misleading, as it often refers to buying the 10 highest-yielding Dow stocks and not necessarily the 10 worst performers.
IBM has a current yield of 2.7%, Exxon yields 2.9%, Chevron is yielding 3.9%, GE’s dividend is at 3.4% and AT&T’s is a whopping 5.4%. My pick of the litter would be AT&T, although there is further risk to $30 on that stock.
A recovery in IBM should be enough to help the Dow clear 18,000 over the near-term, but all of the aforementioned “dogs” will need to bark a little louder in 2015 to get the index pushing 19,000. I also like IBM’s new partnership with Apple (AAPL), which I believe is one that Wall Street is undervaluing. Also, check out Apple’s website and videos on their upcoming watches. They are slick as ice and will be huge sellers. The iPhone 6 is also selling like hotcakes.
As far as the Nasdaq, I mentioned in November that tech should show strength over the next six months, and my year-end target of 4,800-5,000 came into play at the end of November.
The Nasdaq’s all-time intraday high of 5,132 was reached on March 10, 2000, with the index closing at 5,048. There was a tremendous selloff following the “dot com” bubble, as the index fell to an intraday low of 1,108 by October 2002.
I don’t believe that the index will fade at 5,000 this time around because there is a big difference between the unprofitable internet-savvy companies from then and the profitable ones that are trading now. In fact, the Nasdaq could trigger 6,000 in 2015 (or 2016) if all goes well.
The small-caps have struggled for over a month, as they have stayed in a tight trading range since the bounce off of the mid-October lows. Friday’s close was encouraging, but 1,200 needs to hold on a breakout. The 52-week high is at 1,213, and my year-end target was calling for a possible run to 1,400.
This was an aggressive price target and one that will likely stay intact for 2015, with fluff up to 1,450.
The Russell 2000 typically does well in January and usually outperforms the big-cap names. History shows that the small-caps start to move in October and tend to hit the gas in mid-December through January. This bullish run is often referred to as the “January Effect.”
The bears snapped a three-session Monday losing skid as the Dow finished lower last Monday. The losses were held in check, and the bulls got a Friday win to extend their winning streak to three-straight. I showed all of the Monday/Friday closes for all of 2014 last week for those of you who are just signing on. If the bulls get a win today, it would be a good clue that money might be moving into the market for the rest of the year.
I talked about the Wall Street pros possibly chasing a breakout into year-end, although many still don’t believe higher highs are in store. One of the talking heads stated last week that only 5% of fund managers were outperforming the market. The rest are looking ahead to the holidays.
Those who have been left behind will want to get off to a good start for 2015, but they will miss the Santa Claus rally that usually occurs during that last five trading days of the year and the first two of January. Wall Street has been waiting for a pullback that may have already come and gone and, while politics remain as headline risk for the remainder of the month and into 2015, the bulls are looking good.
Side Note: The current 10-year charts show downside risk to Dow 15,500; S&P 1,900; Nasdaq 4,000; and Russell 1,100 before the longer-term uptrend lines would be in play. If the small-caps fade below 1,150 and then 1,100, there is a good chance 2015 turns bearish.
Ahead of the open, futures look like this: Dow (-51); S&P 500 (-7); Nasdaq 100 (-13).
2. JDS Uniphase (JDSU) Spinoff Looks Bullish
For a long time, JDS Uniphase (JDSU, $13.32, up $0.30) was known as “Just Don’t Sell Us.” Wall Street did and the stock has long been forgotten. However, shares are at attractive entry levels and I like it at current levels.
The $3.09 billion network and service company based in Milpitas, California is a leading provider of enablement solutions and optical products worldwide. The company is also an established leader in providing anti-counterfeiting technologies for currencies and other high-value documents and products. Further, it makes high-powered commercial lasers for manufacturing and emerging markets, including 3D sensing solutions for consumer electronics.
Its customers include telecommunications service providers, wireless operators, cable providers, network-equipment manufacturers, original equipment manufacturers, and government organizations. The company operated in three segments:
- The Network and Service Enablement (NSE) segment provides test tools, platforms, software, microprobes, and services for wireless and fixed networks to improve service and application performance.
- The Communications and Commercial Optical Products (CCOP) segment provides components, modules, subsystems, and solutions to communications equipment providers for telecommunications and enterprise data communications. Its transmitters, receivers, amplifiers, reconfigurable optical add/drop multiplexers, optical transceivers, switches, multiplexers and demultiplexers, optical-performance monitors and couplers, splitters, and circulators enable the transmission of video, audio, and text data through fiber-optic cables. This segment also provides laser products, such as diode, direct-diode, diode-pumped solid-state, fiber, and gas lasers for micromachining, materials processing, bioinstrumentation, consumer electronics, graphics, medical/dental, and optical pumping applications.
- The Optical Security and Performance Products (OSP) segment offers optical security solutions that focuses on serving the anti-counterfeiting market for the currency, pharmaceutical, and consumer electronic segments. It also provides thin-film coating solutions for 3D and gesture-recognition applications.
Beginning with the first quarter of fiscal 2015, the NSE segment was split into two separate reportable segments, Network Enablement (NE) and Service Enablement (SE), to provide greater clarity and transparency. The NE segment is a hardware-centric and more mature business consisting primarily of NSE’s traditional communications test instrument products. The SE segment is a more software-centric business consisting primarily of software solutions that are embedded within the network and enterprise performance management solutions.
In 1981, JDS Optics was founded by Dr. Jozef Straus, Philip Garel-Jones, Gary Duck, and Bill Sinclair. The “JDS” is short for Jones, Duck and Straus/Sinclair. A senior member of the Institute of Electrical and Electronic Engineers, Dr. Straus served various research and management positions related to fiber optic technology at Bell-Northern Research and Northern Telecom (later renamed Nortel Networks) prior to 1981. Seeing inefficiencies at Nortel, he met with three of his co-workers and formed JDS Optics, which later formed a partnership with Fitel, a fiber optic and optical connector company, to become JDS Fitel.
In March 1996, JDS Fitel completed its initial public offering (IPO) and raised $93.6 million Canadian dollars. For fiscal 1996 ending May 31, JDS Fitel had $74.8 million Canadian dollars in revenues, up 21.5% from fiscal 1995.
In 1999, JDS Fitel of Canada merged with California-based Uniphase Corporation to form JDS Uniphase. Uniphase was a leading supplier of active fiber components, including lasers, to leading telecommunications equipment providers such as Nortel, Lucent Technologies, and Alcatel SA of France. JDS Fitel specialized in passive components, such as switches and splitters. Together, JDS Uniphase would be able to supply customers with a full range of fiber optic hardware.
In August 1999, JDS Uniphase raised $602.8 million through a public offering of more than nine million shares of common stock under the ticker JDSU. It also offered more than 500,000 exchangeable shares of JDS Uniphase Canada. The U.S. shares were priced at $82.63 a share. The stock rose 814% in 1999 then added another 77% by mid-March of 2000, where share hit a high of $219. Its price-to-earnings ratio rose to 330. During that time, it acquired over ten companies to become a major supplier of fiber optic components and modules.
Fiber optic communications uses light rather than electricity to transmit large quantities of information. In the late 1970s, phone companies started replacing older, less efficient copper wires with fiber. Fiber optic systems work by turning digitized information into rapid-fire pulses of invisible infrared light generated by a laser beam. Demand was fairly constant until the introduction of the World Wide Web in the 1990s, where demand started to skyrocket. To increase bandwidth, researchers developed new systems that could split light into many more wavelengths, each carrying a separate stream of data. This technology, known as wavelength division multiplexing (WDM), is what JDS Uniphase specialized in. The company was able to ride the demand for more bandwidth that has been fueled by the growth of the internet and electronic commerce.
However, telecommunications companies bought a lot of hardware in advance, figuring they will be ready when future demand picks up. So demand started to fall and led to the telecom bubble burst in the early 2000s. Nortel went bankrupt. Lucent Technologies merged with Alcatel SA to form Alcatel-Lucent (ALU). By 2002, JDS Uniphase cut its workforce from 29,000 to 7,000. In 2003, it relocated its manufacturing operations to China to cut costs. As the stock plunged to low single digits in 2005, the company issued a 1 for 8 reverse split. In 2006, the company moved its headquarters to nearby Milpitas from San Jose, California.
The company’s NSE and CCOP businesses are well positioned to benefit from the need for increased network capacity and faster transmission speeds. This need is driven by the growing number of smart mobile devices and demand for high-speed broadband access to support video and other high-bandwidth applications. The growing use of social networking and cloud computing also make network traffic more unpredictable, generating sudden spikes in volume. Further, the segment is well positioned to benefit from the deployment of next generation network technologies such as 4G/Long Term Evolution (LTE), higher-capacity transport solutions to support video (40G/100G), and fiber-to-the-X (FTTx).
The company’s OSP business is well positioned to benefit from the increasing threat of counterfeiting. Counterfeiting for currency and other goods is on the rise because technological advances in imaging and printing tools have made counterfeiting easier than ever. The company has decades of anti-counterfeiting expertise.
In addition, JDSU looks to benefit from the increasing demand for high-precision lasers, addressing the need for lower power consumption, reduced manufacturing footprint, increased productivity, and more cost-effective processes. The company’s laser diodes and optical coatings are used for emerging 3D sensing applications which allow people to control technology with natural body gestures instead of using a remote, mouse, or other device. These 3D sensing systems, also referred to as gesture-recognition systems, are being used in gaming platforms, but could have additional uses.
Due to underperformance, New York-based hedge fund Sandell Asset Management pushed the company to split into two businesses and seek a buyer for its optical component and commercial-laser unit. The fund proposed to auction the unit to maximize shareholder value. After several months, the company agreed to split into two businesses, one focusing on optical components and commercial lasers and the other selling network-testing equipment, and announced the news on September 10, 2014. However, the company said that an auction would hurt shareholders. Instead, it plans to complete a tax-free spinoff by the 3rd quarter of 2015. It expects combined expense reduction of approximately $50 million.
The CCOP segment will form an optical components and commercial lasers company that serves a $7.4 billion optical communications market expected to grow at a compounded rate of 11% over the next four years. The commercial lasers market is estimated at $2.5 billion and growing about 7% annually.
With its long reputation for optical innovation and quality, the new company will be a global leader in optical components and subsystems for the telecommunications market, with growth opportunities in data communications, driven by cloud networking and data center build outs. The company will continue to focus on growing its commercial lasers and 3D sensing applications. The segment’s fiscal 2014 revenue was $794.1 million. Alan Lowe, the segment’s president since 2008 and executive vice president of JDSU, is the CEO-designate of the CCOP stand-alone company.
Spinning off this segment would leave the company with the NSE and OSP segments, which will form a network and service enablement company. The new company will be a leader in its core businesses, serving a $7 billion network and service enablement market expected to grow 6%-8% annually. The new company will primarily focus its investments in higher growth markets, particularly software supporting virtualized and software-defined networks. The optical security business addresses an approximate $1.1 billion market growing at an expected 6%-8% annually.
On Oct. 29, the company reported results for the first quarter ending Sept. 27.
- Revenue increased 1.1% to $433.6 million as compared to $429.0 million a year ago.
- Gross margin improved to 46.0% as compared to 43.2% a year ago.
- Operating margin declined to 1.0% as compared to 1.5% a year ago.
- GAAP net loss was $9.7 million, a decline from a net income of $300,000 a year ago.
- Non-GAAP net income was $33.8 million (or $0.14 per share), up from a net income of $30.2 million (or $0.13 per share) a year ago.
- NE segment revenue was $132.8 million (30.6% of total revenue), down from $145.1 million a year ago.
- SE segment revenue was $48.2 million (11.1% of total revenue), up from $26.8 million a year ago.
- CCOP segment revenue was $209.3 million (48.3% of total revenue), up from $204.6 million a year ago.
- OSP segment revenue was $43.3 million (10.0% of total revenue), down from $52.5 million a year ago.
- For the second quarter, it expects non-GAAP net revenue to be $445 million +/- $12 million and non-GAAP earnings per share to be $0.15 +/- $0.03.
Revenue has not moved much over the years, but it is slowly rising. Analysts estimate that revenue and earnings will rise in the second (12/14) quarter and fall in the third (3/15) quarter, which seems about right. Revenue should stay strong with growth in mobile devices, cloud computing, and the need for bandwidth, but seasonal patterns will dictate sales in the short run. The year-over-year CCOP revenue seems to be growing nicely, but slowing. This may put a cap on the spinoff price.
Two of the company’s major competitors are Finisar (FNSR) and Oplink Communications (OPLK).
On Nov. 19, fiber optics component maker Oplink Communications (OPLK) agreed to be bought by Koch Industries, the privately held enterprise of the Koch family, for $24.30 per share in cash, or $411.5 million. This shows interest in the sector and it’s possible someone might step up and buy JDS Uniphase. After all, their numbers are not that different. And by some metrics, JDS Uniphase looks cheaper.
On Dec. 5, the company announced that a preliminary vote count from its 2014 Annual Meeting of Stockholders showed that shareholders re-elected all six of its director nominees: Keith Barnes, Timothy Campos, Penelope A. Herscher, Masood A. Jabbar, Martin A. Kaplan, and Thomas Waechter. Shareholders also approved all of the company’s other proposals, including the proposed spin-off of its CCOP business unit.
On Tuesday, Dec. 9, 2014, Chief Financial Officer Rex Jackson will speak at the Barclays Global Technology Conference in San Francisco, California at 11 a.m. Pacific.
At $13.32, the stock is between its low target of $6.00 and median target of $15.00 made by the 13 analysts recorded by Thomson/First Call. Mean target is $14.65, and high target is $18.00. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock is 2.6, unchanged from a week ago.
The long-term graph looks like the price has not moved much over the years.
The short-term graph looks more bullish than bearish. Shares have formed a symmetric triangle. If the price breaks above resistance, its target is about $16.70. A close below $12.50 would be slightly be bearish. The stock rose both times the MFI, RSI, Stochastic %K, and W%R were at similar levels, as indicated by the orange lines. However, the MFI, RSI, and W%R are all in or near overbought territory, while the Stochastic %K is nearing oversold.
I like the long-term outlook for JDSU and could add the stock to the portfolio at some-point over the near-term.
3. Momentum Stocks Weekly Play List
All prices given in this update are current as of Dec. 5, 2014.
The Momentum Stocks Weekly Closed Trade Track Record for 2014 is 30-10, for a 75% win rate (115-17, or 87% win rate, overall since the start of 2011).
You can now view the entire list of open and closed trades on our website. View the trades by clicking here.
Brocade Communications Systems (BRCD, $11.49, up $0.12)
Original Entry Price: $11.47 (12/5/14)
Lowered Price from selling options: N/A
Exit Target: $15+
Stop Target: $10
Current Dividend Yield: 1.3%
Action: The company recently reported Q4 earnings of $0.25 a share on revenue of $564 million. Analysts were looking for $0.24 a share on sales north of $562 million. For the current quarter, Brocade gave Wall Street a forecast for a profit of $0.23-$0.25 a share on revenue of $560-$570 million. The suit and ties have a forecast of $0.25 a share on revenue of $564.5 million.
Brocade initiated a quarterly dividend payment of 3.5 cents a share, or 14 cents, annually, or 1.2%. The company wanted to start rewarding shareholders from its strong cash flow and I expect them to raise it in 2015. The next dividend is coming up and will reduce the cost basis of the trade over time.
Brocade’s stock made its debut on the exchanges in May 1999, and went public at a split-adjusted price of $4.75. Over the years, the company has made 8 acquisitions, including its most recent, Vyatta, in 2012. Other marriages include Rhapsody Networks and Foundry Networks. This shows the company’s ambitious growth plans as they are always looking at improving their processes. Perhaps Brocade itself could be a takeover candidate in 2015. Its market cap is just under $5 billion and offers a great way to play network solutions.
Shares recently traded to a 52-week high of $11.77 and a run past $12 is likely over the near-term.
Support is at $11 on a pullback. There is further risk to $10.60 and the 50-day moving average on a close below this level. I have a Stop Target at $10 but it is not a hard stop.
I have a price target of $15 at some point in 2015. Below is a 10-year chart for shares of Brocade.
AT&T (T, $33.94, up $0.03)
Original Entry Price: $33.88 (12/5/14)
Lowered Price from dividends/ selling options: N/A
Exit Target: $40
Stop Target: $30
Current Dividend Yield: 5.4%
Action: Shares are holding their 200-day moving average but there is risk to $33.50-$33 on weakness. The 52-week low is at $31.74. There is further risk to $32-$30 on a drop below $33 but I’m looking for support to hold. The current dividend yield is 5.4% and I like the risk/ reward this trade offers.
Discovery Laboratories (DSCO, $1.36, flat)
Sold to open the DSCO April 2 calls (2015) (DSCO150417C00002000, $0.30, flat)
Original Entry Price: $1.60 (11/11/14)
Lowered Price from selling options: $1.20
Exit Target: $2
Stop Target: None
Action: Shares traded to a low of $1.34 on Friday and there is further risk to $1.25. Resistance is at $1.50. I still like the position at current levels and new subscribers can still sell to open the DSCO April 2 calls against shares to lower the cost basis.
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%.
Psychemedics (PMD, $14.66, down $0.38)
Original Entry Price: $14.45 (11/3/14)
Lowered Price from dividends: N/A
Exit Target: $20+
Stop Target: $14.50 (Stop Limit)
Dividend Yield: 4.2% (60 cents/ 15 cents quarterly)
Action: Shares traded to a high of $15.20 to start last week and made a few closes above $15 before Friday’s drop below this level.
The close below support at $14.75 and the 200-day moving average was slightly bearish and gets the Stop Limit of $14.50 in play.
Resistance is at $15-$15.50. I would wait for a move above $15.25 to start positions if you are a new subscriber. I like the stock longer-term but I always try to protect profits first.
Read my full write-up on PMD from Nov. 3 for more details on why I like this company.
Flextronics International (FLEX, $11.29, up $0.02)
Original Entry Price: $9.12 (10/21/14)
Lowered Price from Selling Options: N/A
Exit Target: $12+
Stop Target: Raise from $10.85 to $11.00 (Stop Limit)
Action: Raise the Stop Limit from $10.85 to $11.00 to protect profits.
Shares held $11 on Monday and made a run to $11.32 on Thursday and Friday. Resistance is at $11.50 and a close above this level should get the 52-week high of $11.83 in play. Support is at $11 with backup at $10.75 and the 100-day moving average.
I may write a deep in-the-money (ITM) covered call on this trade this week or next to lower the cost basis. I still like shares at current levels but I also have a Stop Limit in place to protect profits. I am considering using ITM calls which would eliminate the Stop Limit as the trade would then be considered “covered.” If I take action, I will send out a Trade Alert.
Pizza Inn Holdings (PZZI, $6.96, up $0.04) Stock Trades
Original Entry Price: $8 (8/13/14)
Lowered Price from Selling Options: No options available
Exit Target: $12
Stop Target: $5
Original Entry Price: $8.10 (10/11/13)
Lowered Price from Selling Options: No options available
Exit Target: $12+
Stop Target: $5
Action: The company signed up another 30 locations slated for Colorado that now brings the total number of stores in the mix to 270 in 10 states. There are only 27 current locations in 9 states. Once the expansion really kicks in, bigger profits will follow. The company has a superb management team.
Shares made a run at $7 and resistance on the news after reaching a peak of $6.99 on Thursday. A close above this level and the 50-day moving average would be bullish.
Near-term support is at $6.75 and the 200-day moving average. There is backtest support at $6.50.
Click here to read my in-depth commentary and write-up on Pizza Inn.
Huttig Building Products (HBP, $3.35, up $0.08) Stock Trade
Original Entry Price: $4 (8/13/14)
Lowered Price from Selling Options: No options available
Exit Target: $6+
Stop Target: $2 (Stop Limit)
Action: Shares hovered near short-term support at $3.25 last week after testing a high of $3.37 on Monday. There is additional risk to $3. A close above $3.50 and the 50-day moving average would be bullish.
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 one 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.
Limelight Networks (LLNW, $2.89, up $0.08) stock trade
Original Entry Price: $3.00 (6/9/14)
Lowered Price from Selling Options: N/A
Exit Target: $5
Stop Target: $1
Action: Analysts are warming up to Limelight following an upgrade from “sell” to “hold” along with three higher revised earnings estimates over the past month. Near-term support at $2.75 is holding with $2.50 serving as backup. Friday’s high reached $2.97.
Resistance is at $3 and new subscribers can start positions once this level clears. Options trade on this stock, so I could add another stock position to the portfolio, or possibly a LEAP option trade once $3 clears.
I mentioned last week the company’s CEO picked up 25,000 shares at $2.61 and now has a million shares in his coffer.
Read about why I feel Limelight is a takeover target by clicking here.
Trades on Hold: 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.
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)
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