In This Issue:
Dear Momentum Stocks Weekly Subscriber,
Despite Friday’s pullback, the bulls wrapped up a successful week and reclaimed resistance while setting historic highs in the process.
The 2% runs to all-time highs by the Nasdaq and Russell 2000 once again proved wrong everyone who has said that a market top is in and those who have called for a correction all year long.
The Dow and S&P 500 made runs at their all-time highs, but they stalled as volatility picked up into Friday’s close.
This week could see significant buying or selling pressure, and Greece’s fate will likely become known during today’s market hours.
On Friday, the Dow fell nearly 100 points, or 0.6%, to close at 18,015. The blue chips traded in negative territory throughout the session, with the low checking in at 18,010. The 50-day moving average was stretched, with support at 18,000-17,900 and the 100-day moving average holding. There is additional risk to 17,800-17,600 and the 200-day moving average on heightened volatility. A move above 18,200 would be bullish for a run to 18,350-18,500 and all-time highs.
The S&P 500 slipped 11 points, or 0.5%, to finish just below 2,110. The index held the 2,100 level and the 50-day moving average while going out at its session low. A drop below these levels could lead to 2,090 and the 100-day moving average, with trouble to 2,075-2,050 and the 200-day moving average. Resistance is at 2,115-2,125. The all-time high is at 2,135, with upside to 2,150-2,160 on a breakout.
The Nasdaq dropped nearly 16 points, or 0.3%, to end at 5,117. Tech made a run to 5,140, but the 8-point pop faded as the bears pushed a low of 5,113. Fresh support at 5,100-5,075 easily held, with backup help at 5,050-5,025 and the 50-day moving average waiting in the wings. A close below the latter could lead to 5,000-4,950 and the 100-day moving average. There is additional fluff to 5,200-5,250 on a close above 5,150 and a continued blue-sky breakout.
The Russell 2000 dipped less than a point to settle at 1,284. The small-caps showed the most strength on Friday, as the bears could only manage a 3-point push to 1,281. Near-term support at 1,280-1,275 held to keep my near-term target of 1,300+ in play. A drop below 1,270 might signal that a short-term top is in.
The S&P 500 Volatility Index ($VIX, 13.96, up 0.77) tested resistance at 13.50 during the first half of action before trading to a low of 12.96. I have talked about the need for a drop to 12.50 to confirm fresh all-time highs, and Thursday’s low touched 12.54. Although record highs on the Nasdaq and Russell 2000 triggered, the S&P missed taking out its all-time high of 2,134. The VIX’s move above 13.50 keeps 15 in play. I wouldn’t be surprised to see the VIX spike to 17.50 on a volatile pullback, and I have said repeatedly to stay calm until the bears clear and hold this level.
I mentioned for much of last year and all of this year that the Nasdaq had not come this far not to take out it previous all-time high of 5,134 from 15 years ago. It was a “no-brainer” call, especially as the other major indices set all-time highs throughout 2014.
Last week’s run to 5,143 wasn’t a blue-sky breakout by any means, but it validated my theory that Tech would set historic highs this year. My target from February 23 of Nasdaq 5,500-6,000 by the first quarter of 2016 is certainly in play, but we will prepare for those targets at a later date.
For now, Wall Street’s biggest worry has shifted from the Fed to Greece. While it may be inevitable that the country will default and leave the eurozone, talks of the PIIGS (Portugal, Italy, Ireland, Greece and Spain) returned. Concerns over Portugal, Italy and Spain having a domino effect on the euro in the case of a Greek exit heated up. To make matters more interesting, Russia is joining the party and could dance with Greece.
The indices set session lows into Friday’s close, and another down Monday would be a bearish signal to start the week. Today’s close could be an important early clue on how the rest of the week and month plays out, as the Dow tries to avoid its third-straight Monday loss. Friday’s pullback on the index was the fifth-straight negative Friday.
As far as Greece, the European Central Bank (ECB) gave the Greek banks “emergency” funding over the weekend to support the outflows that have grown to one billion euros daily.
The uncertainty over the country’s bailout could come to a screaming boil today. A last minute deal could come as early as today, but the official, unofficial deadline for the country to make a debt payment is the end of the month.
I have no clue what the outcome will be with Greece and the euro because the zombies play so many musical chairs, anything can happen. The real worry should be whether or not Greece can repay its debt on a consistent basis and not just the one upcoming payment. This can’t be solved if its economy isn’t fixed, which is why the cord should be cut so that world markets can move forward.
Gold caught some action and is holding $1,200 following the Fed circus, as the drop in bond yields weakened the U.S. dollar. This sparked interest in the yellow metal, as gold cleared its 50-day and 100-day moving averages. These two had been curling lower but are trying to flatten out, with additional resistance at $1,210 and the 200-day moving average. A close above $1,210 would be bullish for a possible run to $1,230-$1,240. While a mini-trading range has formed since mid-March, there is still risk to $1,170-$1,150 if $1,200-$1,190 fails to hold.
With the recent trading range, it is a little too risky to go long or short on gold. However, here is how we may want to profit from a possible breakout or breakdown from here.
One could use the SPDR Gold Trust ETF (GLD, $115.12, down $0.20) to play a bullish breakout on a move above $1,210 with the GLD July 117 calls (GLD150717C00117000, $0.75, down $0.10). I mentioned that the safer trade may be waiting for $1,210 to clear, but aggressive traders could use these call options if $115-$114.50 holds on the GLD shares.
For a bearish trade, if gold cracks $1,190, or GLD shares fall below $114.50, speculative traders could use the GLD July 113 puts (GLD150717P00113000, $0.71, down $0.02).
The aforementioned options, together, could also be used to create a strangle option trade. With both options priced near $0.75, shares of GLD would need to clear $118.50-$119 over the near term, or fall below $111-$110, to make a decent profit.
I usually don’t recommend too many exchange-traded fund (ETF) option trades. Instead, I like to play individual stocks, as they have more momentum. Additionally, the bid/ask prices on ETFs can be wider at a dime or more, and I like to trade options with a spread of a nickel or less. However, GLD options have relatively decent bid/ask spreads and are pretty liquid, meaning they are easy to get into and out of.
Silver is also in the same boat on a technical level. The “poor man’s gold” is currently hovering around the $16 level, with risk of a drop to $15.25. Layers of resistance lie between $16.50-$16.75, and a close above these levels would suggest that further gains are ahead.
I love collecting silver coins, but silver dealers or the U.S. Mint ask high “spot” prices of $2-$3 a coin. I’m sure you have seen the silver commercials running on television, but at $20+ per coin while silver is at $16, no thanks. Good deals are usually found at coin shows, pawn shops or through somebody you run across who will sell silver for what an ounce is currently fetching, or lower, in some cases.
We’re six years into a bull market and, for the past three years, all we have heard from Wall Street and the talking heads is that “the” market top is in. At some point, a temporary market top will be in and a pullback, selloff or correction will come.
Of course, these knuckleheads are guessing when a market pullback will come and, when it does, they will say they were right. On the other hand, we will know precisely when a market correction is coming, and we will profit handsomely.
While my instincts are telling me that the back half of June could favor the bears, they still have major levels of support to crack before I would ride with them.
Unlike Wall Street, I don’t care if the next major trend is up or down because the move will be powerful and one we will profit from. The longer the trading range, the bigger the breakout, or breakdown, will be. In the meantime, keep your poker face on and wait for the cards and clues to continue to play out.
While I have said that higher all-time highs could continue into July, we all know it hasn’t been smooth sailing. The trading ranges from February are still in play, but higher highs are being tapped. The week after June option expiration has usually been bearish over the past 25 years, which is why the rest of the month could be rocky. The Dow has fallen over 80% of the time during this period, with an average loss of over 1%.
History likes to repeat itself, and it often rhymes as well. So, while I’m still looking for all-time highs to continue into July, we need to be careful with the headlines that are due out this week.
From desk to press, futures look like this: Dow (+134); S&P 500 (+17); Nasdaq 100 (+39).
Chapter 1. Momentum Stocks Weekly Play List
Although June has been rocky, I have been fortunate enough to guide the Momentum Stocks Weekly portfolio to a 20-0 track record for 2015. Our three biggest stock winners were 56% on RAVE Restaurant Group (RAVE), 48% on Dot Hill Systems (HILL) and another 42% on RAVE. We are 3-0 with option trades with gains of 39% and 71% on trades in Wells Fargo (WFC), and 8% on a Flextronics (FLEX) position. I have a few options trades I like going into the summer and fall.
Given that the trading ranges from February are still in play, I have had to work extremely long hours. That grind will continue as always and I can’t wait, but I want to prepare you for what could be a summer grind with spiked volatility. Our current trades are holding up well and I have planned for any summer weakness by reducing our exposure and locking-in profits on pullbacks.
I haven’t recommending shorting a stock in quite some time but it doesn’t mean I won’t nibble if there is a pullback. I could even recommend a longer-term option play if the setup looks good. I could have Trade Alerts and possibly New Trades this week so make sure you sign up for my text alerts for your cell phone or mobile device as they will alert you when we need to take action.
All prices given in this update are current as of June 22, 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 20-0, for a 100% win rate (133-17, or 89% win rate, overall since the start of 2011).
Rave Restaurant Group (RAVE, $12.78, down $0.69)
Original Entry Price: $11.35 (6/3/2015)
Lowered Price from Selling Options: N/A
Exit Target: $15+
Stop Target: Raise from $8.00 to $12.00 (Stop Limit).
Action: Set a Stop Limit at $12.00. If tripped, the return will be 6%.
Although I don’t necessarily want to trade out of RAVE, if $12.00 fails to hold, we can likely buy shares back near $11.00 again.
Shares zoomed 21% last Thursday to close at $13.47 after trading to a high of $14.09. Friday’s high reached $13.73 before a back test to $12.25. This level will try to hold as short-term support. Resistance is at $13.00-$13.25 and the 50/100-day moving averages (MAs). A “death cross” has also formed between the two major MAs and it’s why I also placed a Stop Limit on the trade.
Rigel Pharmaceuticals (RIGL, $3.07, down $0.30)
Original Entry Price: $3.51 (6/2/2015)
Lowered Price from Selling Options: N/S
Exit Target: $4.00-$5.00
Stop Target: $2.00
Action: I had a feeling RIGL’s failure to hold the 100-day moving average last week would lead to a test of $3.00. There is additional risk to $2.75 and the 200-day moving average if $3.00 fails to hold. Near-term resistance is at $3.25-$3.50.
There have been no major news or nasty headlines this month, so the pullback is puzzling. I still feel comfortable holding the position.
You can read my detailed write-up from the June 8 Issue here.
Flextronics (FLEX, $12.06, down $0.05)
Original Entry Price: $12.55 (5/19/2015)
Lowered Price from Selling Options: N/A
Exit Target: $15+
Stop Target: $10.00
Action: Support at $12.00 was stretched on Monday’s fall to $11.89 and dips below this level throughout the week. Additional support is at $11.40 and the 200-day moving average on a close below $11.80-$11.75.
There is additional risk for FLEX to drop to $11.40-$11.30 and the 200-day moving average on a close below $11.80-$11.75. Resistance is at $12.15-$12.25 and 50/100-day moving averages.
Psychemedics (PMD, $15.25, down $0.35)
Original Entry Price: $15.67 (5/5/2015)
Lowered Price from Selling Options and dividends: No options available
Exit Target: Lower from $18-$20 to $15.75 and make it a Limit Order.
Stop Target: $12.00
Action: Lower the Exit Target from $18-$20 to $15.75 and make it a Limit Order.
Shares of PMD tested resistance at $15.50-$15.60 and the 50/100-day moving averages following the late week surge to $15.60. Friday’s action produced a death cross and it’s why I’m trying to get us out of the trade with a slight profit. However, I like the position for the longer-term, as well, so I don’t mind holding shares while collecting a dividend. Support is at $15.00 and the 200-day moving average with risk to $14.00 again if these levels fail to hold.
Discovery Laboratories (DSCO, $0.84, up $0.06)
Original Entry Price: $1.68 (3/5/2015)
Lowered Price from Selling Options: N/A
Exit Target: $3.00
Stop Target: $0.50
Action: Support at $0.80 to $0.75 cents has been stretched but is still holding. Resistance is at $1.00 and the 50-day moving average.
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+
Stop Target: $2.00 (Stop Limit)
Action: Support is at $3.00. A close below this level could lead to $2.75-$2.70 and 52-week lows. Resistance is at $3.25 and the 100-day moving average. The recent golden cross with the 50-day moving average crossing above the 200-day moving average looks bullish.
Rambus (RMBS, $14.98, down $0.08)
Original Entry Price: $17.83 (11/14/2011)
Lowered Price from Selling Options: $16.38
Exit Target: $15+
Stop Target: $9.00
Action: I wanted to see $15.00 hold into Friday’s close. Support is at $14.50 and the 50-day moving average on a drop below $14.75. Resistance is at $15.25-$15.50 and a close above the latter would be bullish.
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.
I do not recommend adding to these positions or opening new positions, but if you are already holding the stocks, we recently opened covered calls on these positions. If you missed the alert, you can find it here.
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.
Momentum Stocks Weekly