In This Issue:

Dear Momentum Stocks Weekly Subscriber,

The bulls took advantage of another strong rally on Wednesday to clear the indices’ major moving averages, and they are looking to end the week on an even higher note. The bears could end up hibernating into the end of the year, as today is the first “official” day of what may turn out to be a Santa Claus rally. However, volume has been light, and investors will need to decide if they are willing to hold stocks over the upcoming three-day weekend.

The Dow zoomed 185 points, or 1.1%, to end at 17,602. The blue-chips held positive territory throughout the session after pushing a high of 17,607. The close above 17,600 and the 50- and 200-day moving averages was a bullish signal, and that should get 17,800-18,000 back in play. Support is at 17,400-17,350.

The S&P 500 soared 25 points, or 1.2%, to settle at 2,064. The index went out at its session high while clearing several layers of resistance and closing above its 50- and 200-day moving averages. Additional hurdles are at 2,075-2,080, followed by 2,100. Fresh support is at 2,040.

The Nasdaq surged 45 points, or 0.9%, to finish at 5,045. Tech tested near-term resistance at 5,050, and the close above the 50-day moving average was bullish. A move above 5,050 should get 5,075-5,100 in play.

The Russell 2000 rallied 15 points, or 1.3%, to close at 1,152. The small-caps made a steady run towards resistance at 1,150-1,160 and the 50- and 100-day moving averages while also closing at session highs. A move above 1,160-1,165 could lead to a run towards 1,175-1,180. Support is at 1,140-1,135, which are levels that need to hold on any pullback.

The S&P 500 Volatility Index ($VIX, 15.57, down 1.03) continued its descent towards 15 as it pushed a low of 15.33 on Wednesday. The close below the 50- and 200-day moving averages was a very bullish signal. The bulls will be targeting backup support at 13.50 if the VIX can get below 15-14.50 today or next week. A move back above 16.50-17.50 would be a slightly bearish development.

Note: U.S. markets close at 1:00 p.m. EST today, and they will remain closed all day on Friday for the Christmas holiday. I may issue a New Trade or a Trade Alert if I decide to take action, but, if you don’t hear from me by 12:00 p.m. EST, we will head into next week with our current positions. Merry Christmas, happy holidays, and I will chat with everyone again on Monday.

From desk to press, futures look like this: Dow (+20); S&P 500 (+1); Nasdaq 100 (+6); Russell (+3).

Momentum Stocks Weekly Play List

All prices given in this update are current as of Dec. 23, 2015. I hereby disclose that I will be participating in the following trade(s).

The Momentum Stocks Weekly Closed Trade Track Record is 27-8, for a 77% win rate (144-25, or 85% win rate, overall since the start of 2011).

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

 

Honeywell International (HON, $104.96, up $0.80)

HON January 110 calls (HON160115C00110000, $0.19, up $0.02)

Entry Price: $0.85 (11/19/2015)

Exit Target: $1.70

Return: -78%

Stop Target: None

Action: I wanted to see shares recover $104 this week, and Wednesday’s peak reached $105.32. The 52-week high is at $107.41. Support is at $102-$101.50 and the 50- and 200-day moving averages.

 

Planet Fitness (PLNT, $15.55, down $0.15)

Entry Price: $17.85 (9/16/2015)

Lowered Price from Selling Options: N/A

Exit Target: $22.00

Return: -13%

Stop Target: $12.00

Action: Support is at $15.50-$15. Resistance is at $15.75-$16 and the 50-day moving averages.

You can read my latest write-up on PLNT in the Nov. 16 Issue.

 

Rave Restaurant Group (RAVE, $6.05, up $0.26)

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

Lowered Price from Selling Options: N/A

Exit Target: $20.00

Return: -48%

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: -57%

Stop Target: $5.00

Action: Shares of RAVE have been volatile throughout 2015, with plenty of momentum to both the upside and downside. With a market-cap of just under $60 million, seeing these types of moves in micro-cap stocks is not uncommon as companies fight for market share.

RAVE is competing for market share in the “fast casual” space with its concept of high-quality food served quick and fresh. Most consumers wouldn’t think pizza fits into this market, but the company’s state-of-the-art ovens are changing the industry.

Pie Five Pizza has been introducing a revolutionary way for its customers to enjoy pizza over the last three years, which began with the launch of its first location in Texas. Besides offering customers a convenient way to pick their own crust, sauce and ingredients, Pie Five is able to hand customers their personal pie in under two minutes from when they give the server the thumbs up on their creation.

I was excited for my first visit to Pie Five over a year ago after one opened in my area. I got to sample the food and talk with the general manager at one of the stores. I didn’t grill him on the store’s numbers, as I was more interesting in learnings more about the company’s story and culture.

The store I visited at lunchtime was bustling with business and, back then, I said that it reminded me of Chipotle Mexican Grill (CMG). Of course, CMG’s stock has been taking a hit lately due to the E. Coli concerns, and this type of news is always a risk to restaurant stocks

Hygiene should always be the highest priority for any restaurant, and Pie Five prides itself on staying clean. The company’s sleek modern design and cleanliness made my stay that more enjoyable as I took advantage of its free Wi-Fi to catch up on some stock quotes.

Shares came into the year at $7.10 and traded to a 52-week high of $16.20 by late March. The company has reported quarterly losses throughout the year, which have contributed to the nasty pullback. I warned of this possibility throughout the year, as I have mentioned that the company wouldn’t be profitable until at least 2016.

The company recently reported a loss of $0.05 a share on revenue of $14.5 million. Current-quarter estimates are for a loss of $0.04 a share on revenue of $15.4 million.

RAVE is currently trying to form a bottom at $5.50-$5.40, but there is risk to $5 on a close below the latter. The major moving averages are still in a downtrend, but the 200-day moving average looks to be leveling out. Resistance is at $6, and there should be room to run to $7 if $6 is cleared.

While the technical and fundamental outlook remain weak, the longer-term growth story for the company still represents a compelling opportunity. The company is on track to open 500 Pie Five locations over the next few years, and we are still in the early innings of this ballgame. Although shares are down 14% so far in 2015, I consider this a gift from the market, as shares could easily return to double-digits in 2016.

 

Rigel Pharmaceuticals (RIGL, $3.30, 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: -6%

Stop Target: $2.00 (Stop Limit)

Action: Support is at $3.30-$3.20 and the 200-day moving average. Resistance is at $3.40-$3.50.

 

Flex (FLEX, $11.30, up $0.24)

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

Lowered Price from Selling Options: N/A

Exit Target: $15.00+

Return: -10%

Stop Target: $9.00 (Stop Limit)

Action: Resistance is at $11.50 and the 200-day moving average. Support is at $11.25 and the 50-day moving average, followed by $11 and the 100-day moving average.

 

Psychemedics (PMD, $10.70, down $0.13)

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

Lowered Price from dividends: $15.22

Exit Target: $15.75 (Limit Order)

Return: -30%

Stop Target: $7.75 (Stop Limit)

Dividend Yield: 5.5%

Action: Support is at $10.75-$10.50. Resistance is at $10.90-$11 and the 50- and 100-day moving averages.

 

Huttig Building Products (HBP, $3.50, down $0.05)

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

Lowered Price from Selling Options: N/A

Exit Target: $6.00+

Return: -13%

Stop Target: $2.00 (Stop Limit)

Action: Resistance is at $3.55-$3.60 and the 50-day moving average. Support is at $3.35-$3.30 and the 100- and 200-day moving averages on a close below $3.50.

 

Rambus (RMBS, $11.84, down $0.09)

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

Lowered Price from Selling Options: $16.38

Exit Target: $15.00+

Return: -28%

Stop Target: $9.00

Action: Support is at $11.50-$11.40 and the 50-day moving average. Resistance is at $12 and the 100-day moving average.

You can read my updated analysis on Rambus in the Sept. 17 Issue.

We previously sold to open (wrote) the RMBS December (2011) 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) — Keep Stop Limit order at $1.35 in place — Continue to hold.

Trade on!

Signed

Rick Rouse
Editor
Momentum Stocks Weekly