In This Issue:
Dear Momentum Stocks Weekly Subscriber,
Last week, I said to watch for four clues that would let us know if the bulls had more gas in their tank or if they were running on empty.
The first bullish clue we got was last Monday’s win on the Dow, as the blue-chips recovered the 18,000 level and the 50- and 100-day moving averages.
The second clue came from the VIX, as the index finished below 13.50 to start the week, which is a level that held during Tuesday’s bearish action. This level was stretched shortly after Wednesday’s open before the late-day test to 12.50, and that level held into the weekend.
The bears attempt to breach the April lows failed and gave us our hat trick, or our third clue that higher highs could be in store.
I summed up the action by saying that you should watch the action in the financial and tech stocks. These sectors held solid ground and led the way higher to fresh all-time highs.
The Dow advanced 21 points, or 0.1%, to end at 18,080 on Friday. The blue-chips tested near-term support at 18,000 on the open before rebounding to reach an intraday high of 18,108. There is additional support at 17,900-17,800 and the 50- and 100-day moving averages. I was looking for 18,100 to hold into the close, and 18,200 represents the top of the trading range from February. A close above this level will get the all-time high of 18,244 in play, with a possible blue-sky breakout to 18,350-18,500.
The S&P 500 added nearly 5 points, or 0.2%, to settle at 2,117. The index held positive territory for the majority of the session, with support at 2,110-2,100 easily holding. The low of 2,112 looked solid, as the index rebounded to reach a fresh all-time intraday high north of 2,120 for the second-straight session. There is additional fluff to 2,150-2,160 on continued strength. Any dips below 2,100-2,090 and the 50-day moving average need to be watched carefully.
The Nasdaq gained 36 points, or 0.7%, to close at 5,092. Tech looked amazing after pushing past and testing resistance at 5,100 throughout the day. The all-time intraday high of 5,132 is less than 1% away from triggering. I have mentioned that a run to 5,200-5,250 could come on continued momentum if the all-time high is cleared. Support is at 5,050-5,000 on a pullback.
The Russell 2000 fell 4 points, or 0.3%, to finish at 1,267. The small-caps traded to a high of 1,273 at the start of Friday’s session but quickly faded afterwards. The action and test to 1,266 was disappointing given the strength in the overall market, but near-term support at 1,265-1,260 held. There is additional help at 1,250-1,245 and the 50-day moving average. Resistance is at 1,275 and the mid-month all-time intraday high of 1,278. Closes above these levels could lead to a run at 1,300.
The S&P 500 Volatility Index ($VIX, 12.29, down 0.19) spiked to 13.02 shortly after Friday’s open, but the bulls easily held 13.50. I have talked about the 12.50 level being an important level for the VIX, as this would confirm higher highs if cleared. The low of 12.16 failed to take out Thursday’s 2015 low of 12.12, which worries me a little. The 52-week low is at 10.28 and will likely come into play on a move below 11.50. A close above 12.50-13.50 this week will likely get 15 in play going into May.
The aforementioned index chart work is very similar to the charts from two weeks ago. The Dow and S&P 500 are still inside of their nearly three-month long trading ranges (green boxes), while the Nasdaq and Russell 2000 have cleared the tops of their trading ranges. The blue lines represent channels that show my upside fluff targets.
Tech’s performance last week was amazing, and Friday’s follow-through to a record closing high can be attributed to the strength in Amazon.com (AMZN, ($445.10 up $55.11) and Microsoft (MSFT, $47.87, up $4.53). Google (GOOG, $565.06, up $18.06) trended higher despite missing earnings, as analysts upped their price targets and seemed giddy on its YouTube prospects.
All of these companies reported following Thursday’s close, which set the stage for Friday’s breakout on the Nasdaq.
Microsoft smashed Wall Street’s estimates by $0.11 after reporting a profit of $0.62 a share against expectations for $0.51 a share. Revenues also topped forecasts, coming in at $21.73 billion compared to $21.06 billion. The company would have done even better if it wasn’t for the stronger dollar that had a “significant” impact on its results.
Shares of Microsoft traded to a high just north of $48, but bigger gains were made in the MSFT May 45 calls (MSFT150515C00045000, $2.85, up $2.47). They zoomed an amazing 650% on Friday after closing Thursday’s session at $0.38. The calls traded to a high of $3.20 on volume of nearly 18,000 contracts.
Amazon beat by a penny, but it lost $0.12 for the quarter. Revenues topped forecasts at $22.72 billion versus expectations for a reading of $22.4 billion. The suit-and-ties were wowed by the company’s cloud business and its forecasted revenues that were at the higher end of the range for the current quarter.
Google reported a profit of $6.57 a share on revenue of $17.26 billion. The suits and ties were looking for $6.60 a share on revenue of $17.5 billion.
The Dow Jones Transportation Average ($TRAN, 8,880, down 24) recovered its 200-day moving average following a “stretch” down to 8,527 earlier this month. The transports are on the verge of clearing their 50- and 100-day moving averages. Closes above 8,900-8,925 would support a continued rally, while any dips 8,750-8,700 and the 200-day moving average would be a bearish development.
The Financial Select SPDR (XLF, $24.28, down $0.04) held near-term support at $24 following the mid-week pullback and recovered its 50- and 100-day moving averages on Thursday’s run to $24.38. Friday’s slight pullback also held these levels, but a close below $24 would be a bearish signal. A close above $24.80-$25 would be a very bullish sign, as a strong XLF usually signals a stronger economy and stock market. I have talked about how the financial stocks lagged for all of 2014, and the XLF is still down for the year. The XLF started 2015 at $24.73.
I mentioned that Monday’s win was important, but Friday’s positive finish was equally as important. This reversed a prior Monday/Friday losing streak for the Dow. I would like to see some follow-through today on the blue-chips to keep the streak going, along with another up-Friday. The market may have caught a break, as nonfarm payrolls will be released next Friday, May 8. Volatility could return in a big way on another disappointing report and continued Fed-speak regarding when it will raise interest rates.
I have been forecasting tech’s run to all-time highs since last year and have a lofty target of Nasdaq 5,500-6,000 for 2015. Although the intraday high of 5,132 has yet to trigger, I’ve said all along that the bulls weren’t going to come this far without seeing tech challenge and clear its all-time highs.
With the other major indexes setting fresh highs throughout 2014 and into 2015, most market technicians failed to realize that the rising tide would lift all boats. Of course, the Nasdaq’s road to higher highs won’t be smooth sailing. A lot of things will have to go right for tech to make a run at 6,000, but the major clue is that the 200-day moving average will need to hold throughout 2015.
Geopolitical events are also heating up. U.S. ships are in Yemen, and fighting intensified over the weekend. There were seven U.S.-led air strikes targeting militia in Syria, and 16 strikes against militia in Iraq, the U.S. military reported. This will likely create more tensions about the security of Middle East oil supplies, which could bring back volatility on continued saber-rattling.
I will be covering the longer-term charts in late June or early July, but, for new subscribers, you can review all of my year-end price targets in the Feb. 23 Issue. It will be a quick read, and it’s a great review on how 2015 might play out. So far, so good, but I know how the bears work and how fast they can strike.
“Sell in May and go away” could become a bigger theme next week if there is a pullback in the next few days.
For this week’s clues, watch the action in the small-caps and the VIX. I predicted single-digits for the VIX last year, and there is a good possibility that another test to 10 comes at some point this year. Last year’s test to 10.28 came in July. I covered the Russell 2000 and the VIX earlier and the levels to watch for.
I have updated all of the current trades below and have raised some Stop Limits to protect profits. I could have additional Trade Alerts throughout the day, so stay close to your email inboxes and be sure to sign up for SMS text message alerts if you haven’t done so already.
From desk to press, futures look like this: Dow (+48); S&P 500 (+4.25); Nasdaq 100 (+11).
Momentum Stocks Weekly Play List
All prices given in this update are current as of April 17, 2015
The Momentum Stocks Weekly Closed Trade Track Record for 2015 is 12-0, for a 100% win rate (128-17, or 88% win rate, overall since the start of 2011).
TiVo (TIVO, $11.31, up $0.09)
Original Entry Price: $11 (4/7/15)
Lowered Price from Selling Options: None
Exit Target: $12.00-$13.00
Stop Target: $10.00
Action: Shares made a strong move past the 100-day moving average last week following a three-week trading range. The next layers of resistance are at $11.50-$12.00 followed by the 200-day moving average. Support is at $11.00-$11.25 and the 50-day moving average.
Earnings are due out in late May so this headline risk is removed until then. Analysts are looking for the company to earn $0.07 on revenue north of $91 million. The company beat estimates by three cents last time out.
Shares reached a peak of $11.92 (black candlestick on chart) on the earnings beat in early March and the company has topped estimates in three of the past four quarters.
Another earnings beat could send shares soaring to the mid-teens if current momentum can hold. TiVo has also been on my list of takeover target candidates in recent years as they are great at managing video and TV content. With the move of cutting the cable cord growing, TiVo makes great sense for managing content.
Last week, Arris Group shelled out $2.1 billion in a cash-and-stock deal for Pace, a British set-top box maker. Tivo sports a current market cap of just over $1 billion and a $2 billion takeover bid would have shares trading into the low $20s.
A takeover of TiVo is pure speculation on my part, of course, but one that has become more valid with the Arris Group/ Pace marriage.
As far as suitors, Apple (AAPL) makes the most sense if the company ever decides to make a television. AppleTV has been a nice success and by adding TiVo, it would gain a great partner in an established industry leader.
TiVo pioneered the DVR experience and owns a number of intellectual properties that are extremely valuable. With earnings improving and a hot sector to be in, I like TiVo on both a fundamental and technical basis.
Limelight Networks (LLNW, $3.65, down $0.08)
Original Entry Price: $3.91 (3/18/15)
Lowered Price from Selling Options: N/A
Exit Target: $7.00
Stop Target: $2.00
Action: Resistance at $3.40-$3.45 and the 50-day moving average was cleared on Monday’s surge to $3.60 and close at $3.57. Support will try to hold at $3.50 on a pullback. Resistance is at $3.80 and a close above this level will likely lead to another run at $4.00.
I pegged Limelight as a takeover target last year and the company turned down an offer north of $6.00 last summer. Management said the takeover offer wasn’t from the right group of investors, and I said they would need to prove to shareholders why.
Earnings are due out this Thursday. Wall Street is expecting a loss of 4 cents a share on revenue of $39 million. The company has beat estimates by 4 cents in back-to-back quarters and three cents, twice, in the prior quarters over the past year. However, all quarters were losses and that’s why this quarter will be crucial in the company trying to turn the corner to profitability.
Rigel Pharmaceuticals (RIGL, $4.88, up $0.55)
Original Entry Price: $3.72 (3/10/15)
Lowered Price from Selling Options: N/A
Exit Target: $6.00
Stop Target: Raise from $3.80 to $4.25 (Stop Limit).
Action: Raise the Stop Limit from $3.80 to $4.25.
Shares traded to a high of $4.97 on Friday and nearly cleared $5.00. A move above this level could lead to a run to $5.50-$6.00. Support will try to hold at $4.50 on a pullback followed by $4.25.
Golden crosses have also formed with the 50-day and 100-day moving averages crossing above the 200-day moving average in March and April.
You can read my full write-up on RIGL in the March 16 Issue. My near-term Price Target is $5.00-$6.00 with a shot at double-digits by year-end.
Discovery Laboratories (DSCO, $1.24, down $0.02)
Original Entry Price: $1.68 (3/5/15)
Lowered Price from Selling Options: N/A
Exit Target: $3.00
Stop Target: $0.50
Action: Shares held positive territory and tested $1.24 to start the week. Wednesday’s run to $1.31 failed to hold resistance at $1.30. A close above this level could lead to $1.35-$1.40 and the 50/100-day moving averages. Support is at $1.20 followed by $1.10-$1.00.
From last week:
“The company suspended its efforts in bringing Surfaxin to market. The decision to cease the commercialization of the drug wasn’t due to safety or efficacy concerns. The company simply decided to preserve capital and to focus their attention in bringing another drug in their pipeline, Aerosurf, to market.”
“The company has enough cash to get into 2016. By then, phase 3 trials should begin for Aerosurf, and maybe a partnership will be formed if the company needs a cash infusion.”
Dot Hill Systems (HILL, $6.56, up $0.06)
Original Entry Price: $4.25 (3/4/15)
Lowered Price from Selling Options: N/A
Exit Target: $5.00-$7.00
Stop Target: Raise from $5.80 to $6.15 (Stop Limit).
Action: Raise the Stop Limit from $5.80 to $6.15.
Shares traded to fresh 52-week highs throughout last week and peaked at $6.75 on Friday. I mentioned continued momentum could carry shares to $6.50-$6.75 and a close above the latter would be bullish for a run at $7.00. Near-term support is at $6.20 on dips below $6.50.
Earnings are due out on May 7, and I will cover the numbers next week.
Bank of America (BAC, $15.64, down $0.05)
Original Entry Price: $17.63 (12/19/14)
Lowered Price from selling options: $17.28
Exit Target: $20+
Stop Target: $15.00
Current Dividend Yield: 1.3%
Action: Shares continue to struggle with their 50-day moving average and resistance at $15.75. A move above $16.00 would be bullish and, if shares get there, it’s where I would like to write another call option. Support is at $15.50-$15.25.
We previously sold to open the BAC January 18 calls for 30 cents on Jan. 2, 2015, to reduce the cost basis to $17.33, and the calls expired for the full premium on Jan. 16, 2015.
Bank of America paid a 5-cent dividend on March 4. This lowered the cost basis of the trade to $17.28.
Rave Restaurant Group (RAVE, $15.21, up $1.01)
Original Entry Price: $8 (8/13/14)
Lowered Price from Selling Options: No options available
Exit Target: $20.00
Stop Target: $12.60 (Stop Limit)
Action: Shares traded down to $13.11 to start the week, followed by $13.09 on Tuesday. Support at $13.00 held before a rebound to $14.00 midweek. This was a good signal the lows might be in as Friday’s high reached $15.93. The 7% move was likely due to new brokerage coverage of the stock. ROTH Capital initiated a “Buy” rating on RAVE.
The 52-week high is at $16.20. Fresh support at $15.00 will try to hold on a pullback followed by $14.00 and the 50-day moving average. Closes above $16.00-$16.25 could lead to a run to $18.00-$20.00.
For new subscribers, you can read my February earnings update on RAVE and why this stock is a multi-year hold. The company’s next earnings report is due out in May. Options are still unavailable to trade on the stock.
Huttig Building Products (HBP, $3.84, down $0.10)
Original Entry Price: $4 (8/13/14)
Lowered Price from Selling Options: No options available
Exit Target: $6+
Stop Target: $2.00 (Stop Limit)
Action: Shares traded up to $3.72 last Monday and above the previous week high of $3.70. This was a good sign a run to $4.00 was still in the works.
Thursday’s surge to $4.12 came on a decent earnings report. The company broke even for the quarter on revenue north of $147 million. This was an improvement over last year’s first quarter loss of $4.0 million on more than $135 million in sales.
I would like to see a move back above $4.00 this week. I could then set a Stop Limit as I don’t want to play a back test to $3.50 and the 200-day moving average. However, I could be forced if shares fail to hold $3.60 this week.
I still like this trade for the longer-term but would like to protect profits or break even as the position has been open for eight months.
The one-year weekly chart is showing a run to $4.40 could be in the mix:
Rambus (RMBS, $13.99, down $0.31)
Original Entry Price: $17.83 (11/14/2011)
Lowered Price from Selling Options: $16.38
Exit Target: $15+
Stop Target: $9.00
Action: The company beat Wall Street’s estimates last week for a profit of 6 cents a share after posting earnings of $0.14 a share. The 8-cent beat also came on better than expected revenue of $72.9 million versus forecasts for $72.88 million.
The bad news is Rambus may have sandbagged the current quarter outlook, or Q2, after saying revenue would come in at $70-$74 million. The suits and ties had penciled-in $75 million.
In March, Rambus licensed its patents and technology solutions to IBM. In April, the company partnered with overseas company, Barco Silex, to provide point-of-sale security solutions. Last week, Rambus hooked-up with Athena Group to tackle advanced security.
Near-term support is at $13.50-$13.00 followed by $12.75 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 (6): 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), Bebe Stores (BEBE, February 2012), Vivus (VVUS, July 2012), Zynga (ZNGA, March 2014), Galena Biopharma (GALE, February 2014)
Momentum Stocks Weekly