In This Issue:

Dear Momentum Stocks Weekly Subscriber,

Wall Street was thrown a curveball last week following China’s decision to devalue its currency. While it was a surprise to the suits-and-ties, it shouldn’t have been when it comes to the country’s politics.

With economic growth slowing, China embarked on its own quantitative easing program. It was the biggest bet the country has made in the last decade concerning its economy, and it looks like an “all-in” move.

The good news is that the bulls may have survived the most ferocious blows the bears have dealt all year. The bad news is that the market is still on pins and needles.

The Dow jumped 69 points, or 0.4%, to end at 17,477 on Friday. The blue-chips tested 17,394 on the open, but the 14-point loss easily held support at 17,400-17,350. The late-session run to 17,492 fell shy of clearing resistance at 17,600. There are additional hurdles at 17,775-17,800 and the 50-day moving average. A move above the latter would be bullish and would support staying long. A close below 17,400-17,350 will likely ruin any chance for an end-of-summer rally.

INDU81415

The S&P 500 added 8 points, or 0.4%, to finish at 2,091. The index slipped to a low of 2,080 intraday, with the bulls holding support at 2,075-2,070 and the 200-day moving average. The pop to 2,092 in the second-half of the session fell short of clearing resistance at 2,095-2,100 and the 50- and 100-day moving averages. A close above 2,100 could lead to a retest of 2,125-2,135.

SPX81415RRMO

The Nasdaq gained 14 points, or 0.3%, to close at 5,048. Tech traded down to 5,012 ahead of Wall Street’s lunch break and split support at 5,025-5,000. The push past resistance at 5,050 reached 5,051, with the 100-day moving average holding into the close. There is additional resistance 5,075 and the 50-day moving average, followed by 5,100-5,125.

COMPQ81415

The Russell 2000 rallied 8 points, or 0.7%, to settle at 1,212. The small-caps were weak throughout the first half of the action and traded to a low of 1,199. Support at 1,200-1,190 held before the bulls made a run to close at the session high. Resistance at 1,215 held, and there are additional barriers at 1,225-1,230. A bearish development has occurred, as the 50-day moving average has fallen below the 100-day moving average just below the 1,250 level.

RUT81415

The S&P 500 Volatility Index ($VIX, 12.83, down 0.66) tested a high of 13.87, with resistance at 14-15 and the 100-day moving average holding. The close below 13.50 at the 12.80 level was a bullish sign. A finish below 12.50-11.50 would confirm further bullish momentum.

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The major clues from last week were the action in the VIX and the Monday/Friday closes. As simple as it sounds, I wanted to see a higher Monday/Friday close on the Dow last week. The bulls snapped a two-session Monday slide on the Dow and cleared prior resistance at 17,600. Friday’s win broke a four-session Friday skid on the blue-chips. These were helpful clues that money might be moving into the market despite the cross-current winds. Check One.

I also wanted to see the VIX hold 15. Check Two. In fact, the VIX has closed below the 15 level for 14-straight and 24-of-the-past-25 sessions. The index was stretched mid-week when the bears tapped 16.28. We won’t flinch or go “short” until 17.50 is cleared and held on back-to-back closes.

Although the backslide to 17,125 on the Dow mid-week might have worried Wall Street, I have been planning for weakness until mid-August, as I prepared us and mentioned repeatedly in late July that we could see the index move 1,000 points this summer.

The July 20 high reached 18,137, which represented a short-term double top. Last Wednesday’s low of 17,125 marked a 1,012-point move in 17 sessions from peak to trough.

Aside from the Monday/Friday closes last week, I said to clue-in on the action in the VIX. I have been one of the few voices, and possibly the only voice, that has said that the VIX could test single-digits at some point this year, and we have come close to seeing this happen. As much as it gets bashed and ignored by the slick-talking pros, the VIX has been and continues to be our bread-and-butter indicator for getting a read on the market’s pulse.

The “flash crash” to 10.88 on the VIX at the beginning of the month was a blessing, as it confirmed any market top ahead of the  historically weak start to August. The drop below its two levels of support looked funny, which is why I said it couldn’t be trusted. The VIX is giving good clues, but it still has to be analyzed carefully. The talking heads say to ignore the VIX until it hits 20. If there is a return to this level this month or next, we will likely be one step ahead of Wall Street with potential “short” positions.

Checking in on gold ($GOLD, $1,113, down $1), the yellow metal is trying to make a rebound back to resistance at $1,140-$1,150 and the 50-day moving average. Gold held the $1,080 level at the beginning of the month and has rebounded nicely after holding support and building a base. Although the move has been impressive, the major moving averages are still sloping lower.

A move above $1,150-$1,175 would start to improve the technical picture, but I wouldn’t trust a solid rebound in gold until the $1,200 level and the 200-day moving average is cleared. The end-of-week action looks bearish and might suggest that a short-term top at $1,125 is in. A close back below $1,100 looks like it might be the area to start fresh “short” positions.

GOLD81415

As far as silver ($SILVER, $15.22, down $0.18), its technical setup is improving following a bottoming process near the $14.50 level. The close above $15 mid-week looked bullish at first, but silver is struggling to hold its 50-day moving average. The major moving averages are still sloping lower, and another drop below $15 would also confirm that a possible short-term top is in. I like the idea of nibbling at silver at current levels, but I would wait until $16.25 and the 200-day moving average are cleared before loading up on the “poor man’s gold.”

SILVER81415

Oil is getting cheaper again and is now at six-year lows. A big rise in stockpiles here in the United States seems to have added to the growing global glut and continued talk of lower prices. It’s possibly that Brent oil could hit the low-$40 level, as you can see from the 10-year chart below.

BRENT81415

The Transports may have formed a temporary bottom following Friday’s recovery of the 50-day moving average. Last week’s drop below 8,200 may have been the capitulation moment the index needed for a short-term rebound. Bigger hurdles remain at 8,500 and the 100-day moving average, but all of the major moving averages are starting to level out. Another drop below 8,200-8,150 would be a bearish development.

TRAN81415

I talked about the mini “death cross” that formed in Apple’s (AAPL, $115.96, up $0.81) chart last week, and the gap between the 50-day moving average and the 100-day moving average has gotten wider. The spread last week was $0.77, and it is now at $1.62.

I also mentioned that there was continued risk to $110-$107.50 on a close below $112. Although there hasn’t been a close below this level, AAPL registered a mid-week low of $109.63 before shares finished the session higher at $115.24.

I also said that if AAPL shares can clear $120-$120.50 and the 200-day moving average, it would be a bullish signal. Before I put the cart in front of the horse, however, Apple needs to clear $116.25-$116.50. Another move below $113.50 would be bearish.

AAPL81415RRMO

As far as the financials go, they have been a mixed bag, but most of them are showing bullish signals. They will need to rebound this week and next to support a rally off of the lows.

Goldman Sachs (GS, $202.02, up $1.28) made a backtest towards its 200-day moving average following last week’s drop to $196.58. Shares need to rally another $8 and clear $210 and a downward-sloping 50-day moving average before the technical picture improves.

GS81415

Short-term bullish traders could target the GS August 205 calls (GS150821C00205000, $0.85, up $0.10) for a run past $205 this week, but these options expire on Friday, so they are risky.

Longer-term bearish traders could target the GS September 190 puts (GS150918P00190000, $1.35, down $0.20) on a drop or close below $195. If $210 holds as resistance on a rebound rally, these options will get cheaper, so traders could watch the GS September 195 puts (GS150918P00195000, $2.30, down $0.30) as well.

Bank of America (BAC, $17.70, up $0.08) might be a more attractive play, as it is another financial stock showing strength. Shares held on last week’s backtest to $17, with the 50-day moving average getting stretched and holding into Friday’s close. “Golden crosses” formed in mid-June and late July, with the 50-day moving average and 100-day moving average crossing above the 200-day moving average.

BAC81415

There are “cheaper” ways to play BAC than there are GS, which is why I could take action in BAC this week. I could buy call options, and I have looked at numerous setups to play a possible run to $18-$18.50 over the near term, and possibly $20 by year-end.

Bullish traders could target the BAC September 18 calls (BAC150918C00018000, $0.28, up $0.01) for a possible run to higher highs and fresh 52-week peaks north of $18.48. This option traded nearly 12,000 contracts on Friday.

If BAC shares can reach $18.55-$18.60 by mid-September, the aforementioned call options will easily double from current levels, as they would be $0.55-$0.60 in the money. If shares tap $19 by this time frame, the options will be worth $1, and the return would be more than 200%. If support holds and I take action, I will send a possible New Trade Alert at some point today.

I will be reviewing the 10-year charts at the end of the month and over the upcoming U.S. Labor Day holiday on Sept. 7. While I have been peeking at them, I’m hoping that the bulls can follow through with an end-of-summer rally. From there, I can forecast how September, October and possibly the rest of the year might play out.

From desk to press, futures look like this: Dow (-16); S&P 500 (-3); Nasdaq 100 (-4); Russell (-1).

Chapter 1. Momentum Stocks Weekly Play List

All prices given in this update are current as of Aug. 14, 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 25-1, for a 96% win rate (142-18, or 89% win rate, overall since the start of 2011).

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

 

Ohr Pharmaceutical (OHRP, $2.41, down $0.04)

Original Entry Price: $3.16 (7/28/2015)

Lowered Price from Selling Options: N/A

Exit Target: $6.00+

Return: -24%

Stop Target: $1.00

Action: There is risk to $2.25-$2.00 on continued weakness.  Resistance is at $2.75-$2.85 and the 50- and 100-day moving averages.

You can read my detailed update on OHRP in the July 30 Issue.

OGRP81415

Limelight Networks (LLNW, $2.70, up $0.03)

Original Entry Price: $4.03 (7/9/2015)

Lowered Price from Selling Options: None

Exit Target: $5.00-$6.00

Return: -33%

Stop Target: Lower from $3.00 to $2.00 (Stop Limit)

Action:  Lower the Stop Target from $3.00 to $2.00, and make it a Stop Limit order.

The company got some bad news on Thursday following the reversal of a court ruling from the U.S. Court of Appeals.  The decision to overturn a patent dispute against Akamai (AKAM) will cost Limelight $45 million in damages and was a surprise.  However, the company said it was well-positioned for future growth as network traffic remains strong.  While I can ride the storm out for a quarter or two, I have set a Stop Limit to limit continued downside risk.

Near-term support is at $2.40-$2.20 on a drop below $2.50.  Resistance is at $2.80-$3.00.

LLNW81415

Rave Restaurant Group (RAVE, $11.57, down $0.14)

Original Entry Price: $13.92 (7/9/2015)

Lowered Price from Selling Options: N/A

Exit Target: $20.00

Return: -17%

Stop Target: $10.00

Action:  RAVE shares tested a low of $10.89, twice last week, with a low of $10.86.  I’m looking for these levels to hold but there is still risk to $10.00 on a close below $10.75-$10.70.  The June low reached $10.72.

The good news is the 200-day moving average is sloping higher and the 50-day moving average is starting to level out and has a little curl to it.  The 100-day moving average is still in a downtrend trend but looks like it wants to level out at $13.00.

I have wanted to add a second position but I wanted to make sure the technical picture was improving.  The fundamentals are still in progress as the company isn’t likely to turn a profit until late 2016, at the earliest.

Pie Five opened another location this past Friday in Mission, Kansas.  The one that opened is being run by a former President and CEO of Applebee’s.  Dave Goebel signed a 10-unit deal with Rave for Pie Five shops and plans to have eight units opened by year-end.  He also believes the Kansas City area has the potential to do 18 to 20 Pie Fives Pizza joints.  Wow.

The company is opening five new stores this month, and it remains on track for 500 pie shops during the next five years.  Another Pie Five in my home state is opening up in Richmond, Virginia, come September, along with eight total new openings scheduled for next month.  Earnings are also scheduled to come out at some point in late September.

You can read my recent earnings update on RAVE and find out why it remains my No. 1 stock pick in the June 29 Issue.

RAVE81415

Rigel Pharmaceuticals (RIGL, $2.74, down $0.12)

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

Lowered Price from Selling Options: N/A

Exit Target: $4.00-$5.00

Return: -22%

Stop Target: $2.00

Action:  Shares continue to struggle with resistance at $3.00 and the 200-day moving average.  A move above this level would be bullish.  There is still risk to $2.60-$2.50 on closes below $2.75-$2.70.

You can read my detailed write-up on RIGL in the June 8 Issue.

RIGL81415RRLT

Dot Hill Systems (HILL, $5.43, up $0.03)

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

Lowered Price from Selling Options: N/A

Exit Target: $14.00-$15.00

Return: -24%

Stop Target: $4.50 (Stop Limit)

Action:  Support is at $5.40 and the 200-day moving average with shares closing a penny below this level on Friday.  There is still risk to $5.25-$5.00 on a close below $5.35.  Resistance is at $5.50-$5.75.  A mini death cross has formed with the 50-day moving average closing below the 100-day moving average.  This indicates possible further weakness.

New subscribers should wait for $6.00 to clear before initiating new positions.  Our first trade in Dot Hill netted longer-term subscribers 48% on the move from $4.25 to $6.30.

HILL81415

Flex (FLEX, $11.17, up $0.07)

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

Lowered Price from Selling Options: N/A

Exit Target: $15.00+

Return: -11%

Stop Target: $10.00

Action:  Resistance is at $11.25 and the 50-day moving average followed by $11.50 and the 200-day moving average.  Support is at $11.00 followed by $10.80-$10.75.

You can read my detailed write-up on Flex in the July 30 Issue.

FLEX81415

Psychemedics (PMD, $12.46, up $0.37)

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

Lowered Price from dividends: $15.52

Exit Target: $15.75 (Limit Order)

Return: -25%

Stop Target: $7.75 (Stop Limit)

Dividend Yield: 4.9%

Action:  Shares tried made a move out of their mini trading range following last week’s run at $12.50.  Additional hurdles remain at $13.00-$13.25 and the 50-day moving average.  Support is at $12.00-$11.50.

PMD81415

Huttig Building Products (HBP, $3.13, down $0.05)

Original Entry Price: $4 (8/13/2014)

Lowered Price from Selling Options: N/A

Exit Target: $6.00+

Return: -21%

Stop Target: $2.00 (Stop Limit)

Action:  Shares are on the verge of clearing the 50-day moving average with additional resistance at $3.20-$3.25.  The 100-day moving average is close to crossing above the 200-day moving average, and that would also be a bullish signal.  A symmetrical triangle is forming, and I will detail this action in the coming weeks.  Earnings are improving, and I believe shares are a steal at current levels.

I’m hoping a rebound in the homebuilders gives HBP shares a lift but I don’t mind holding this low-priced gem for the long haul.

HBP81415

Rambus (RMBS, $13.45, up $0.04)

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

Lowered Price from Selling Options: $16.38

Exit Target: $15.00+

Return: -18%

Stop Target: $9.00

Action:  I have been tempted to write another call option against this trade but it would cap the upside.  I have said Rambus is one of my favorite takeover ideas and that’s why I continue to remain patient with the position.

Resistance is at $13.75 followed by $14.00 and the 50- and 100-day moving averages.  Support is at $13.25-$13.00 followed by $12.75 and the 200-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.

RMBS81415

Trades on Hold (7): 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.

Note: I will be updating the September positions in a few weeks as our call options will be expiring on a few trades.  I will likely be closing three or four positions that have been on hold and dead weight from years past.  I can write the trades off against winners come tax time this year but I still hate being wrong on a trade and losing money, either way.  This will clear the way for a number of new trades.

Like I mentioned earlier, I like Bank of America (BAC) and could take action as early as today.  I also have a longer-term option trade I may take action on this week, as well, but I’m still doing research and chart work as we go to press.  We have been patient and it’s time to start nibbling, so stay close to your email inboxes.  Also, be sure to sign up to receive my Text Alerts to your mobile device if you haven’t done so already.

Discovery Laboratories (DSCO, March 2015) — Continue to hold.

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