In This Issue:

Dear Momentum Stocks Weekly Subscriber,

The market suffered its worst trading day in months on Wednesday, as volatility soared to fresh highs and the August lows came back into play. However, the bulls recovered nicely from the mid-day madness, and the small-caps rebounded to regain positive territory by the closing bell.

Some of the strength can be attributed to monetary-easing plans from central banks overseas as well as talk that the Federal Reserve might be planning its own stimulus package, including a cut in interest rates. I doubt this will be the case for the Fed and, if the rumors turn out to be false on either front, further selling pressure could be in store.

The Dow fell 249 points on Wednesday, or 1.6%, to settle at 15,766. The blue-chips traded to an intraday low of 15,450, but the bears failed to take out the late-August low of 15,370. The 565-point drubbing was cut in half by the closing bell, but the finish below 15,800 remains a slightly bearish clue. Shaky support is at 15,600-15,450. Resistance is at 15,900-16,000.

The S&P 500 climbed 22 points, or 1.2%, to close at 1,859. The index stumbled to a low of 1,812 intraday, and I mentioned coming into the week that there could be further weakness to 1,825-1,800 if 1,850 failed to hold. The close above this level was slightly bullish, but the inability to hold 1,860 was slightly bearish. A move below 1,840 today will likely get fresh lows in play. Resistance is at 1,875-1,880.

The Nasdaq slipped 5 points, or 0.1%, to end just below 4,471. Tech tumbled to a low of 4,313, but the bears failed to take out the Aug. 24 low of 4,292. I warned that there could be risk to 4,300 if 4,400 was breached this week, and Wednesday’s open at 4,405 was a good clue that this target would come into play. The rebound to 4,514 and resistance at 4,500-4,525 looked bullish, but these levels failed to hold into the close.

A “death cross” has formed on the Nasdaq’s chart, with the 50-day moving average now below the 200-day moving average. This is a bearish development that could lead to additional selling pressure down the road. On the other hand, continued closes above 4,525-4,550 would be a bullish.

The Russell 2000 climbed 4 points, or 0.5%, to finish at 999. The small-caps tested a low of 958 before rebounding to reach a late-day peak of 1,008. I warned of further weakness to 960-950 on a move below 975, and the signals are mixed following the close below the 1,000 level for the second-straight session. A move above 1,010-1,015 would be a slightly bullish signal, but any rallies can’t be trusted until 1,025 is cleared and held for several sessions. Another drop below 975 would represent continued selling pressure.

The S&P 500 Volatility Index ($VIX, 27.59, up 1.54) added 6% after spiking to a high of 32.09 during the height of the pullback. The bulls held upper resistance at 30-35, but the close above 27.50 keeps these levels in play. Support is at 25.

Yesterday’s action made it feel as though we could be getting closer to a capitulation moment, so it is still hard to trust bullish trades at this juncture. At some point, there will be a sharp, snap-back rally, but we will need to see multiple days of higher highs and higher lows before we are able to trust the bulls. Wednesday’s whipsaw action represented lower highs and lower lows for the second-straight session.

From desk to press, futures look like this: Dow (-4); S&P 500 (+2); Nasdaq 100 (+8); Russell (-1).

Momentum Stocks Weekly Play List

All prices given in this update are current as of Jan. 20, 2016. I hereby disclose that I will be participating in the following trade(s).

The Momentum Stocks Weekly Closed Trade Track Record is 0-1, for a 0% win rate for 2016 (144-26, or 85% win rate, overall since the start of 2011).

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

 

Lattice Semiconductor (LSCC, $4.46, up $0.03)

Original Entry Price: $6.77 (12/29/2015)

Lowered Price from Selling Options: N/A

Exit Target: $9.00

Return: -34%

Stop Target: $4.00, lower to $3.50 (Stop Limit)

Action: Lower the Stop Target from $4.00 to $3.50 and make it a Stop Limit order. This will cut our potential losses to less than 50% if support at $4.00 fails to hold. Wednesday’s low touched $4.02.

Support is at $4.25-$4 on continued weakness. Resistance is at $4.75-$5 and the 100-day moving average.

 

Relypsa (RLYP, $19.84, up $1.19)

Original Entry Price: $28.29 (12/28/2015)

Lowered Price from Selling Options: $26.14

Exit Target: $30.00+

Return: -24%

Stop Target: $14.00

Action: Support is at $18, and there is risk to $16 on a close below this level. Resistance is at $20-$22 and the 100-day moving average.

I could sell to open (write) the RLYP February 30 calls (RLYP160219C00030000, $0.70, up $0.20) shortly after today’s open to lower the cost basis to under $25.50 a share. If I do, I will send out a Trade Alert.

You can read my detailed write-up in the Jan. 4 Issue.

 

Planet Fitness (PLNT, $14.42, down $0.25)

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

Lowered Price from Selling Options: N/A

Exit Target: $22.00

Return: -19%

Stop Target: $12.00

Action: Support is at $14-$13.75 on continued weakness. Resistance is at $14.75-$15.

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

 

Rave Restaurant Group (RAVE, $5.42, up $0.16)

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

Lowered Price from Selling Options: N/A

Exit Target: $20.00

Return: -61%

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: -54%

Stop Target: $5.00

Action: Support is at $5.25-$5. Resistance is at $5.50-$5.75.

You can read my most recent write-up on the company in the Dec. 24 Mid-Week Issue.

 

Rigel Pharmaceuticals (RIGL, $2.88, up $0.13)

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

Lowered Price from Selling Options: N/A

Exit Target: $4.00-$5.00

Return: -18%

Stop Target: $2.00 (Stop Limit)

Action: There is risk to $2.60-$2.50 if shares fail to hold $2.70 on another backtest. Resistance is at $2.90-$3 and the 100-day moving average.

 

Psychemedics (PMD, $8.10, down $0.48)

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

Lowered Price from dividends: $15.22

Exit Target: $15.75 (Limit Order)

Return: -47%

Stop Target: $7.75 (Stop Limit)

Dividend Yield: 6.7%

Action: Shares tested a low of $7.76 on Wednesday. The Stop Limit is at $7.75.

Support is at $8-$7.75. Resistance is at $8.50-$9.

 

Huttig Building Products (HBP, $3.19, down $0.01)

Original Entry Price: $4.00 (8/13/2014)

Lowered Price from Selling Options: N/A

Exit Target: $6.00+

Return: -20%

Stop Target: $2.00 (Stop Limit)

Action: Support is at $3.10-$3. Resistance is at $3.25-$3.30 and the 200-day moving average.

 

Rambus (RMBS, $11.00, up $0.11)

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

Lowered Price from Selling Options: $16.38

Exit Target: $15.00+

Return: -33%

Stop Target: $9.00

Action: Support is at $11-$10.75. Resistance is at $11.25-$11.50 and the 50-day moving average.

 

Trades on Hold (1): 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.

Zynga (ZNGA, March 2014) — Continue to hold.

Trade on!

Signed

Rick Rouse
Editor
Momentum Stocks Weekly