In This Issue:
Dear Momentum Stocks Weekly Subscriber,
The bears snapped their six-week losing streak last week while cracking several layers of support on the major indices. The damage was severe, and the Dow and S&P 500 fell back into negative territory for the year. This week promises to be just as volatile, as geopolitical events are likely to come into play.
The Dow fell 202 points, or 1.2%, to close at 17,245 on Friday. The blue-chips traded to a low of 17,238, with support at 17,300-17,250 and the 100-day moving average holding. There is risk to 17,000 and 50-day moving average on continued weakness. Resistance is at 17,500-17,600 and the 200-day moving average.
The S&P 500 dropped 23 points, or 1.1%, to settle at 2,023. The index bottomed at 2,022, with support holding at 2,025-2,020. The close below the 100-day moving average was slightly bearish, and there is risk to 2,010-2,000 and the 50-day moving average on a move below 2,020. Resistance is at 2,050-2,060 and the 200-day moving average.
The Nasdaq gave back 77 points, or 1.5%, to end at 4,927. Tech tumbled to a low of 4,925 while closing below its 100- and 200-day moving averages. There is additional risk to 4,900-4,875 and the 50-day moving average. A close below the latter would be very bearish. Resistance is at 4,950-5,000.
The Russell 2000 fell 8 points, or 0.7%, to finish at 1,146. The small-caps showed some strength on Friday following an intraday test to 1,154. Resistance at 1,160 easily held before the bears pushed a low of 1,144. The close below the 50-day moving average was slightly bearish. There is additional help at 1,135-1,125 if 1,140 fails to hold.
The S&P 500 Volatility Index ($VIX, 20.08, up 1.71) jumped 9% to clear 20 and the 200-day moving average for the first time since early October. There is risk to 22.50-25 over the near term on continued market weakness. The bulls need to get the VIX back below 17.50 to regain momentum.
The biggest developments from last week were the VIX’s move above 17.50, the decline in crude oil rates and slumping prices for other commodities. To make matters worse, a half-dozen Fed heads got their 15 minutes of fame during their individual speeches on the economy last week, as the debate on the possibility of a December interest rate hike continues to boil.
Wall Street now expects that there is a 70% chance a rate hike will come next month, according to most of the talking heads, but that figure probably decreased following the mixed signals given by the zombies. It will be very interesting to see how the Fed reacts over the next few weeks if the market goes into another tailspin and if commodities stay at six-year lows.
I have been warning about the continued weakness in gold and silver for several weeks now following the break below the 200-day moving average in October. Gold was above $1,140, and silver was near $15.50 an ounce coming into the month, but both have crashed hard below their 50- and 100-day moving averages.
Gold ($GOLD, $1,083.40, down $1.10) is testing its summer lows and is in danger of breaking below $1,000 — dare I say — this year. With the major moving averages in torpedo mode, they aren’t likely to level out anytime soon.
The longer-term, 10-year monthly chart shows that, if the $1,000 level cracks, there would be risk to the $900-$800 level, which is where I would start backing up the truck.
In the meantime, I often profile the SPDR Gold Shares ETF (GLD, $103.56, down $0.29) as a way to play bullish or bearish moves in the yellow metal, and I have added both near-term and longer-term bearish option trades to my Watch List.
The GLD December 100 puts (GLD151218P00100000, $0.90, up $0.05) look attractive at current levels to play a continued near-term pullback. The GLD December 99 puts (GLD151218P00099000, $0.75, up $0.03) could also be used, and they are slightly “cheaper.”
To play a possible drop towards $900 into next year, I like the GLD March (2016) 95 puts (GLD160318P00095000, $1.20, up $0.05). These options look tempting, as they would allow another five months for a continued breakdown in gold. The risk/reward ratio of this trade could reach nearly 5-to-1 if GLD shares test $90 by March 2016. If so, the puts options would be $5 “in the money.” The open interest in these options is over 3,000 contracts, which shows that traders are taking protection or looking to score big.
The chart for GLD mirrors that of gold. The near-term chart shows risk to $100 over the near term, with all of the major moving averages in a massive downtrend.
The longer-term chart shows that, if GLD falls below $100, there is a good chance that $95-$90 and possibly $80 come into play.
Last week’s pullback looked nasty and could get worse if there is no rebound to start the week. If the market closes lower today but backup support levels hold, it could be the start of a bottoming process. However, if volatility stays elevated and there is continued weakness, we may have to start looking for a few bearish trades.
From desk to press, futures look like this: Dow (+16); S&P 500 (+4); Nasdaq 100 (+5); Russell (+3).
Momentum Stocks Weekly Play List
All prices given in this update are current as of Nov. 13, 2015. I hereby disclose that I will be participating in the following trade(s).
The Momentum Stocks Weekly Closed Trade Track Record is 27-7, for a 79% win rate (144-24, or 86% win rate, overall since the start of 2011).
View the entire list of open and closed trades by clicking here.
Cypress Semiconductor (CY, $10.04, up $0.12)
CY November 10 calls (CY151120C00010000, $0.21, down $0.09)
Entry Price: $0.57 (10/16/2015)
Exit Target: $1.15 (Limit Order on first half)
Return: -63%
Stop Target: None
Action: Shares tested a low of $9.88 on Friday before holding $10 into the close. Support is at $9.75-$9.50 and the 50-day moving average. Resistance is at $10.25 and the 100-day moving average.
These options expire this Friday, and I would like to keep the trade open until Thursday. The breakeven point is at $10.57, and these calls are technically “in the money.” If shares fail to hold $9.75 before Thursday, I will likely close the position with a Trade Alert.
Planet Fitness (PLNT, $16.07, up $1.04)
Entry Price: $17.85 (9/16/2015)
Lowered Price from Selling Options: N/A
Exit Target: $22.00
Return: -10%
Stop Target: $12.00
Action: Shares traded to a high of $17.34 on Friday following better-than-expected earnings. PLNT failed to hold its 50- and 20-day moving averages, but the $16 level stuck. Additional help is at $15.50 and the 10-day moving average. Resistance is at $16.75-$17.
The company reported earnings last week of $0.10 a share on revenue of $68.8 million. Wall Street was looking for $0.09 a share on revenue of $66 million. The company expects 2015 numbers of $0.51-$0.52 a share on revenue of $318-$321 million.
Planet Fitness closed the quarter with 1,040 locations and expects to double that number during the next seven years
It is rare Wall Street provides you an opportunity to get into an undiscovered stock it has yet to notice. There is little analyst coverage of the stock, but I expect that to change if the company grows its business model without damaging its cash flow or taking on too much debt.
I wanted to write a covered call into Friday’s strength, but I don’t want to “cap” our upside. I might reconsider if and when shares can clear $18, but I don’t mind holding this stock for the longer-term.
You can read my detailed write-up on PLNT in the Sept. 17 Issue.
Rave Restaurant Group (RAVE, $6.00, up $0.60)
Original Entry Price (First Position): $13.92 (7/9/2015)
Lowered Price from Selling Options: N/A
Exit Target: $20.00
Return: -57%
Stop Target: $5.00
Original Entry Price (Second Position): $11.70 (8/17/2015)
Lowered Price from Selling Options: N/A
Exit Target: $13.00+
Return: -49%
Stop Target: $5.00
Action: The two-year chart shows risk to $5.50, and Friday’s trip to $5.91 represented a 52-week low. Resistance is at $6.25-$6.50, followed by $7.
You can read my detailed write-up on RAVE and its recent earnings update from the Sept. 28 Issue.
Rigel Pharmaceuticals (RIGL, $3.05, down $0.01)
Original Entry Price: $3.51 (6/2/2015)
Lowered Price from Selling Options: N/A
Exit Target: $4.00-$5.00
Return: -13%
Stop Target: $2.00 (Stop Limit)
Action: Support is at $3-$2.90 and the 50- and 100-day moving averages. Resistance is at $3.20-$3.25 and the 200-day moving average.
Flex (FLEX, $11.05, down $0.08)
Original Entry Price: $12.55 (5/19/2015)
Lowered Price from Selling Options: N/A
Exit Target: $15.00+
Return: -12%
Stop Target: $9.00 (Stop Limit)
Action: Shares closed between the 50- and 100-day moving averages on Friday. Resistance is at $11.25, followed by $11.50 and the 200-day moving average. Support is at $11, followed by $10.75. A close below $10.75 could lead to $10.50-$10.25.
Psychemedics (PMD, $11.09, down $0.03)
Original Entry Price: $15.67 (5/5/2015)
Lowered Price from dividends: $15.22
Exit Target: $15.75 (Limit Order)
Return: -28%
Stop Target: $7.75 (Stop Limit)
Dividend Yield: 6%
Action: Resistance is at $11.25-$11.50 and the 100-day moving average. Support is at $11-$10.50 and the 50-day moving average.
Huttig Building Products (HBP, $3.58, up $0.03)
Original Entry Price: $4.00 (8/13/2014)
Lowered Price from Selling Options: N/A
Exit Target: $6.00+
Return: -11%
Stop Target: $2.00 (Stop Limit)
Action: Resistance is at $3.60-$3.70. A close above the latter should lead to a push towards $3.80-$4. Support is at $3.50, followed by $3.40-$3.30 and the 50-day major moving average.
Rambus (RMBS, $10.73, down $0.04)
Original Entry Price: $17.83 (11/14/2011)
Lowered Price from Selling Options: $16.38
Exit Target: $15.00+
Return: -34%
Stop Target: $9.00
Action: Resistance is at $11-$11.50-$12, followed by $11.75 and the 50-day moving average. Support is at $10.50-$10.
You can read my updated analysis on Rambus in the Sept. 17 Issue.
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 (3): 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.
Discovery Laboratories (DSCO, March 2015) — Continue to hold.
Zynga (ZNGA, March 2014) — Continue to hold.
Galena Biopharma (GALE, February 2014) — Continue to hold.
Trade on!
Rick Rouse
Editor
Momentum Stocks Weekly
