In This Issue:

Dear Momentum Stocks Weekly Subscriber,

The bears made some noise last week as the circus in Greece continued. Like all good clowns, they will eventually leave town, but the clock is ticking as the country’s debt debacle is once again coming down to the wire.

Volatility picked up and will likely continue for the last few days of June and into July. With second-quarter earnings just around the corner and the current shenanigans going on around the world, the summer action is going to be anything but dull.

The Dow gained 56 points, or 0.3%, to finish at 17,946 on Friday. The blue-chips traded to a high of 18,013 and tested the 50- and 100-day moving averages before closing below these levels. There is additional risk to 17,800 on further weakness, and a close below this level could lead to 17,600 and a test of the 200-day moving average. Resistance remains at 18,100-18,200.

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The S&P 500 gave back a point, or 0.04%, to end at 2,101. The index made a run to 2,108 but struggled with resistance at 2,115-2,125. The close below the 50-day moving average was slightly bearish, but the 2,100 level stuck. The bulls held the 100-day moving average following Friday’s low of 2,095, but there is further risk to 2,075 on a drop below 2,090.

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The Nasdaq declined 31 points, or 0.6%, to settle at 5,080. Tech made a brief appearance into positive territory to reach 5,121, but short-term resistance at 5,125 held firm. Backup support at 5,075-5,050 and the 50-day moving average held on the close below 5,100, with Friday’s low reaching 5,060. There is additional risk to 5,000 and the 100-day moving average on a drop below 5,050.

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The Russell 2000 fell 3 points, or 0.3%, to close at 1,279. The small-caps traded to a high of 1,287 for a second-straight session but couldn’t clear resistance at 1,290-1,300. The slippage to 1,274 may have signaled a short-term double top, as the bears cracked support at 1,275 on Friday’s pullback. A close below 1,270 could lead to a quick test to 1,250 and the 50-day moving average.

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The S&P 500 Volatility Index ($VIX, 14.02, up 0.01) traded to a high of 14.91 but ended flat as a pancake. The bulls held 15 for the ninth-straight session, and I have repeatedly said that we won’t flinch until the bears get a close above 17.50. We don’t need to get aggressively short until then. The bulls need to recover 13.50-12.50 today or tomorrow. If not, the action could get ugly.

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The market is mixed for June, with the Dow down 64 points and the S&P off by a 6-pack. Tech is up 10 points, and the small-caps are higher by 33 points, or nearly 3%. There are two trading days left in the month, and there could be a 1%-3% move lower (or higher) by Thursday for these indices.

I mentioned previously that the week after June option expiration is typically bearish. Although the losses were less than 1%, the bears warned Wall Street that they were getting hungry.

Greece also had two days before its fate might have been decided, but it threw the market a curveball. After Wall Street closed on Friday, the country’s Prime Minister declared a referendum.

To make a long story short, the zombie running Greece rejected an “ultimatum” from lenders over the debt that it won’t ever pay back and left it up to its people to decide. The vote will take place next Sunday, July 5. The U.S. market is closed this Friday in advance of Independence Day on Saturday, and Greece’s future in Europe will be at risk to a popular vote.

The market will likely be held hostage for the next four sessions, and the suits-and-ties will likely be too nervous to stay long ahead of a three-day weekend. The odds of a Greece default have increased dramatically, and the market hates uncertainty. Next Monday could be one of the most volatile days of the year if the current set of events unfolds on schedule.

The Financial Select SPDR (XLF, $24.89, up $0.08) finished the week slightly higher after tapping a fresh 52-week high of $25.25. There is additional fluff to $27-$28 on continued closes above this level. Near-term support is at $24.75-$24.50 and the 50-day moving average. The fact that the sector showed strength is great, but it is feeling like a temporarily crowded trade.

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Goldman Sachs Group (GS, $213.17, up $0.35) pushed a fresh 52-week peak of $218.77 early last week. Shares gave back $4 the next trading day and struggled with $215 afterwards. A close below $210 could lead to $205 and the 50-day moving average. Perhaps this was a weak sign for this week, but it might represent a great entry point if support holds.

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The Dow Jones Transportation Average ($TRAN, 8,242, up 3) continues to flirt with disaster after trading to a fresh 2015 low of 8,227 on Friday. The break below a “triple bottom” at 8,300 was a bearish signal that could lead to 8,000 and possibly the October low of 7,700.

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I’ve talked in May about how the Dow could trade to new highs without the help of the Transports, but they clearly have held the blue-chips back in June. However, it is important to note that the Transports outperformed the Dow last year by 16%. Most market technicians like to see both the Dow and the Transports flying into blue-sky territory together, and I mentioned that this might not be the case right now. When the two do manage to dance together, along with Apple (AAPL, $126.75, down $0.75), the Dow should be pushing 20,000.

Healthcare stocks blasted higher last week following the Supreme Court’s ruling that “Obamacare” subsidies were legal. This gave the healthcare sector a boost, with Community Health (CYH, $63.99, up $1.54), Tenet Healthcare (THC, $57.81, up $1.61) and Universal Health (UHS, $142.69, up $1.88) soaring on the news. Community Health and Universal Health surged to fresh 52-week peaks.

Tenet Healthcare traded up to $57.70 on last Thursday’s news and $58.61 on Friday. While I wouldn’t chase the first two aforementioned stocks, Tenet could be a candidate for an option trade, as its 52-week peak is north of $63. This would represent possible double-digit gains in the stock from current levels if shares can reach fresh highs.

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The THC July 59 calls (THC150717C00059000, $1.20, up $0.45) traded over 1,000 contracts on Friday. This is a signal that bullish traders are expecting a run at the 52-week highs as well.

I started watching the THC July 60 calls (THC150717C00060000, $0.93, up $0.33) on Thursday after they jumped 50% and traded to a high of $1.36. They closed at $0.40 on Wednesday, $0.60 on Thursday and traded to a high of $1.25 on Friday.

Aggressive traders could possibly nibble on that trade to play a continued move higher. However, with this week up in the air and a three-day weekend ahead, it may be better to wait until next week and look at August options. The bid/ask spread on THC options is ridiculously high at the moment. This is the one caveat that will likely keep me out of the trade, as I like to trade options with a spread of a nickel or less.

Friday’s positive close on the Dow ended a five-Friday losing streak, and there will be no trading this Friday. This means that today’s close will be an important clue on how the rest of the week shakes out. While a positive Monday on the Dow could signal that the market is prepared to handle the outcome of Greece, I think the referendum and delay into next week was not something the suits-and-ties were prepared for.

My gut feeling is that this week could get rocky, and I think more talking heads and slick-talking pros will once again jump off of the bulls’ bandwagon. Investor Carl Icahn once again said he was worried about the market, after the Nasdaq just set an all-time high, following his last bearish comments on the market months ago. I can’t count the number of times he has predicted a market crash in the last six years.

A nasty week could set up a snapback rally the following week after Greece’s fate is finally known, and that could last into mid-to-late July. If the major moving averages on all the major indices start to fail, the action could stay bearish for just as long.

It will be important the VIX stays below 17.50 on the closes this week, but I wouldn’t be surprised to see a spike to 20 on panic selling. Our portfolio is positioned perfectly to handle what could be a chaotic week, and I could be busy with Trade Alerts.

Remember, if you haven’t already, you can sign up to receive text alerts delivered to your mobile device to stay on top of any actions to take during the trading day. Register for text alerts here.

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From desk to press, futures look like this: Dow (-173); S&P 500 (-21); Nasdaq 100 (-52).

Momentum Stocks Weekly Play List

All prices given in this update are current as of June 26, 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).

View the entire list of open and closed trades by clicking here.

 

Rave Restaurant Group (RAVE, $13.40, down $0.10)

Original Entry Price:  $11.35 (6/3/2015)

Lowered Price from Selling Options:  N/A

Exit Target:  $15+

Return:  18%

Stop Target:  Raise from $12.00 to $12.40 (Stop Limit)

Action:  Raise the Stop Limit from $12.00 to $12.40. Last week’s low touched $12.41.

Rave Restaurant Group took a tumble in May after announcing its quarterly earnings results. Shares were pushing $15 ahead of the news, but they stumbled to a low of $10.72 earlier this month.

The company reported a loss of $0.05 a share on revenue of $11.91 million. In the prior quarter, RAVE posted a quarterly loss of $0.04 a share on revenue of $11.1 million.

The quarterly losses could likely continue throughout 2015 and into 2016 before the company starts to see the fruits of its labor. However, revenues will explode once Rave’s Pie Five stores, which are currently being developed, start to mature. Therefore, I’m not too worried about the recent quarterly loss.

The company has more than $2 million in cash (and equivalents) and nearly $3 million in accounts receivable. This means that it won’t have to borrow money to build its company-owned stores.

Rave is on track to open 500 Pie Five restaurants over the next five years, and the company recently opened its 51st location. It will receive royalties from its strong partnerships and franchise agreements, which is what I want to expand on now.

The company’s CEO, Randy Gier, has a proven track record and has had successful stints at Frito Lay, KFC and Pizza Hut. He also has a talented team working with him, with Chris Smith, VP of operations, who helped Chipotle Mexican Grill (CMG) grow. Additionally, the company’s CFO, Tim Mullany, is a well-thought-of executive who worked in the same role for Smashburger.

Together, these three and the rest of the management team plan to dominate the fast-causal pizza industry. Pie Five cooks one of its pizzas in less than two minutes, and they taste really good. I know from experience, as I have tried a couple of different pizzas at its various locations.

While Pie Five will be its biggest bread winner over the next decade, Rave also has nearly 300 Pizza Inn locations. These types of restaurants are pizza buffets that are being rebranded and upgraded. It is still too early to say if this “turnaround” project will work, and this is one of the drags that has weighed on earnings.

At the height of its success, Pizza Inn had nearly 750 locations around the world. I mentioned earlier that this number has been halved, but this will be the first year that there are more openings than closings of Pizza Inn locations.

The Pizza Inn stores are usually single-franchisee units. The beauty of its Pie Five development is that the company is signing multiple-unit agreements (usually 10 to 15 stores) with established franchisees. Gier said he believes that the way to maximize the success of Rave is by partnering with seasoned restaurant owners who have proven track records themselves. In his words, “We don’t have time to train rookies or weed through amateurs.” Right on.

The beauty of Rave hidden behind the reason the company changed its name from Pizza Inn Holdings. The company wants consumers to “rave” about its brand and is not going to limit itself to just pizza. Down the road, I expect Rave to come up with another concept, but I can only speculate what it might be.

I mentioned coming into 2015 when shares were in the single-digits that once double-digits were cleared, shares might not look back. Following the journey to a 52-week high of $16.20, shares came close to testing single-digits, as they dropped to a recent low of $10.72.

The chart below shows the stock forming a floor of support at $11, with the 200-moving average and $10.50 as a sub-floor.  Shares have recovered their 50- and 100-day moving averages, with further resistance at $14.  A move above this level could lead to a return into blue-sky territory and another run past $16+.

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I have talked about the lack of Wall Street coverage on this small-cap gem, but some of the suit-and-ties have finally taken notice. Roth Capital initiated coverage of RAVE in April with a “Buy” and matched my six- to 12-month target of $20 a share.

Earlier this month, another brokerage firm issued a “Buy” rating on RAVE with an $18 price target.

Shares of RAVE look very attractive at current levels. If my price target of $20 is reached, it would represent a gain of roughly 50% from where the stock is currently sitting. However, I believe this stock should be a multi-year hold, with tremendous price appreciation if the company can execute its aggressive growth plans.

 

Rigel Pharmaceuticals (RIGL, $3.26, down $0.15)

Original Entry Price:  $3.51 (6/2/2015)

Lowered Price from Selling Options:  N/A

Exit Target:  $4.00-$5.00

Return:  -7%

Stop Target:  $2.00

Action:  Shares rebounded to test resistance at $3.50 and the 100-day moving average following Monday’s surge to $3.54.  A move above these levels would be bullish.  Support is at $3.25-$3.00.

You can read my detailed write-up from the June 8 Issue here.

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Dot Hill Systems (HILL, $6.31, down $0.28)

Original Entry Price:  $7.10 (5/21/2015)

Lowered Price from Selling Options:  N/A

Exit Target:  $14.00-$15.00

Return:  -11%

Stop Target:  $5.00

Action:  Shares dropped 5% midweek and below their 50-day moving average.  There is additional risk to $6.25-$6.00 and the 100-day moving average following Friday’s close below $6.50.  Resistance is at $6.75-$7.00.

You can read my full write-up on HILL in the May 26 Issue.

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Flextronics (FLEX, $11.84, down $0.01)

Original Entry Price:  $12.55 (5/19/2015)

Lowered Price from Selling Options:  N/A

Exit Target:  $15+

Return:  -6%

Stop Target:  $10.00

Action:  Support at $11.80-$11.75 and a close below the latter would be bearish.  A death cross has formed with the 50-day moving average falling below the 100-day moving average.  It could be a warning sign for a test to $11.40-$11.30 and the 200-day moving average on further weakness.  Resistance is at $12.00.

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Psychemedics (PMD, $15.41, down $0.01)

Original Entry Price:  $15.67 (5/5/2015)

Lowered Price from Selling Options:  No options available

Exit Target:  $15.75 (Limit Order)

Return:  -2%

Stop Target:  $12.00

Action:  Shares recovered $15.00 and tested resistance at $15.50-$15.60 and the 50-day moving average last week.  Friday’s high reached $15.66, and we have a Limit Order to exit at $15.75.

Support is at $15.25 with risk to $14.00 on a close below $15.00 and the 200-day moving average.  I still love the company’s fundamentals but I don’t like the technical setup at this time.

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Discovery Laboratories (DSCO, $0.68, down $0.05)

Original Entry Price:  $1.68 (3/5/2015)

Lowered Price from Selling Options:  N/A

Exit Target:  $3.00

Return:  -60%

Stop Target:  $0.50

Action:  Support at $0.80-$0.75 has failed and sets up risk to a drop of $0.50.  Resistance is at $0.75, and it’s a level I would like to see recovered this week.
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Huttig Building Products (HBP, $3.28, up $0.19)

Original Entry Price:  $4 (8/13/2014)

Lowered Price from Selling Options:  No options available

Exit Target:  $6+

Return:  -26%

Stop Target:  $2.00 (Stop Limit)

Action:  Resistance at $3.25 and the 100-day moving average was cleared on Friday’s 6% surge.  A move above $3.40 and the 50-day moving average would be another bullish signal.  Support is at $3.00.

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Rambus (RMBS, $15.21, down $0.12)

Original Entry Price:  $17.83 (11/14/2011)

Lowered Price from Selling Options:  $16.38

Exit Target:  $15+

Return:  -7%

Stop Target:  $9.00

Action:  The next layers of resistance are at $15.50-$15.75.  Support is at $15.00-$14.75 followed by $14.50 and the 50-day moving average.

RMBS was named Citi’s top pick in the semiconductor sector last week, as an analyst sees a major deal between Rambus and Intel (INTC) coming.  Citi slapped a price target of $17.50 on shares but I believe RMBS could push $20.00 on raised earnings guidance and takeover chatter.

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.

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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.

Trade on!

Signed

Rick Rouse
Editor
Momentum Stocks Weekly