In This Issue:

Dear Momentum Stocks Weekly Subscriber,

The bears snapped a two-week losing streak following Friday’s pullback to the market’s lower levels of support. The bulls’ failure to clear major resistance levels continues to be a problem, with lower highs and lower lows coming into play, and tech and the small-caps are in danger of testing fresh lows for the year if there is no recovery this week.

The Dow tumbled 211 points, or 1.3%, to settle at 16,204 on Friday. The blue-chips made a brief trip into positive territory to 16,423, but the 7-point gain quickly evaporated. The late-day low reached 16,129, and the close above 16,200 was a slightly bullish signal. There is a risk  of hitting 16,000-15,800 on a move below 16,100. Resistance is at 16,350-16,400, followed by 16,600 above.

INDU

The S&P 500 stumbled 35 points, or 1.9%, to finish at 1,880. The index traded in negative territory throughout the session, with the bears pushing a low of 1,872. Support at 1,875-1,870 held, and backup support  can be found at 1,850. Resistance is at 1,900-1,905, and there are additional hurdles at 1,920-1,925.

SPX

The Nasdaq sank 146 points, or 3.3%, to close at 4,363. Tech leveled out during the final few hours of trading after holding backup support at 4,350. The January low reached 4,313, and the close below 4,400 was extremely bearish. It was the first close below this level in over a year, and it keeps the 52-week and late-August low of 4,292 in play. A move above resistance at 4,400-4,425 today would be a slightly bullish signal.COMPQ

The Russell 2000 tanked 29 points, or 2.9%, to end at 985. The small-caps also closed at their lowest level in more than a year after going out at their session low on Friday. The Jan. 20 bottom reached 958, and a move below 950 will likely lead to panic-selling. Resistance is at 995-1,000, and a close above the latter, quickly, would be a bullish signal.

RUT

The S&P 500 Volatility Index ($VIX, 23.38, up 1.54) gained 7% and reached a peak of 24.11 on Friday. The bulls held upper resistance at 25, and the close between 23.50-22.50 was a slightly bullish signal. Support at 20 remains rock solid, and that is a level the bears have held in 22 of the past 24 sessions this year.

VIX

The MSCI USA Momentum Factor ETF (MTUM, $66.39, down $2.05) is an easy-to-follow indicator that gauges momentum in stocks. As you can see from the chart below, the index is once again at major support levels, and a close below $66 would likely be a bearish development. This level held in August, September, January and again on Friday.

MTUM

The late-August low touched double-nickels ($55), and that level could come into play on further weakness. More importantly, the 50-day moving average is on the verge of falling below the 200-day moving average. This would confirm a “death cross,” which is usually a bearish setup to lower lows.

As far as specific stocks go, shares of LinkedIn (LNKD, $108.38, down $83.90) fell a whopping 44% on Friday despite reporting better-than-expected fourth-quarter results. The company topped Wall Street’s estimates by $0.16 after announcing earnings of $0.94 a share on revenue of $862 million. Analysts had penciled in $0.78 a share on revenue of $857 million.

The problem was the 2016 forecast for earnings of $3.05-$3.20 a share on revenue of $3.6-$3.65 billion. The suits-and-ties had estimates for $3.67 a share on revenue of $3.9 billion.

The 52-week and multi-year low for LNKD reached $102.81 on Friday, and there is risk to $95-$90 if $100 fails to hold. Overhead resistance is in the $115-$125 area.

LNKD

Shares were trading north of $192 going into Thursday’s close. When it comes to trading around earnings, it’s always best to do the math for a move of at least 10% in a stock to see if a call or put option trade is plausible. This would have translated into a $19-$20 move in LNKD shares going into the earnings announcement.

The LNKD February 170 puts (LNKD160219P00170000, $61.50, up $56.80) were trading for $4.70 ahead of Thursday’s close and zoomed an incredible 1,200% on Friday. I normally shy away from stocks trading over $100 and options that trade over $2 due to the high premiums. Needless to say, however, bearish traders that stepped up to the plate cleaned up.

Given the nearly 50% discount, bullish traders are arguing that shares are way oversold. Obviously, the near-term call options were hammered on the pullback. The LNKD February 210 calls (LNKD160219C00210000, $0.01, down $6.19) fell over 99% on the lowered outlook after closing Thursday’s session at $6.20. While I would avoid short-term options on LNKD, there could be a longer-term trade in the name if shares hold par.

Another “momentum” stock that took it on the chin Friday was Salesforce.com (CRM, $58.51, down $8.69). There was no specific news related to the company, but shares fell 13% in sympathy with the earnings results from Tableau Software (DATA, $41.33, down $40.42), which saw its shares sink nearly 50%.

Much like LinkedIn, Tableau topped expectations but slashed current-quarter earnings and revenue guidance. I don’t actively follow DATA, but I do track CRM. Salesforce.com is scheduled to announce earnings on Feb. 24, and I believe they may have had a better quarter than analysts are forecasting. The current estimates are at $0.19 a share on revenue of just under $1.8 billion.

The company has topped or matched estimates during the past four quarters, and the “whisper” earnings number is as high as $0.22 a share on sales of $1.81 billion. A bearish target has the company missing estimates by a penny.

With CRM shares at two-year lows, it is a little too early to establish bullish positions, as the chart shows risk to $55-$50. Fresh resistance is at $60-$62.50.

CRM

We have time to wait and see how shares trade into the week of the earnings announcement. If a base forms at $57.50-$55 on lower lows, I will be targeting the CRM March 60 calls (CRM160318C00060000, $4.15, down $4.35) for a possible rebound play. These options will get cheaper on continued weakness in the stock, so we’ll continue to watch them, as they were heavily traded on Friday.

The CRM March 50 puts (CRM160318P00050000, $1.85, up $1.47) zoomed nearly 400% on Friday after trading to a high of $2.05. These options closed Thursday at $0.38. While these options now seem expensive, they could run further if shares fail to hold Friday’s fresh 52-week low of $57.75.

Weekly options are also available on CRM, so the aforementioned options are just a starting point from my weekend research. If I decide to take action on a bullish or bearish trade, I will send out a Trade Alert.

With the market backpedaling for much of 2016, Gold ($GOLD, $1,174.10, up $18.10) has climbed nearly 10% year-to-date. Last week’s move above the 200-day moving average was a bullish signal, and that should  bring the $1,200 level in focus. The 50- and 100-day moving averages are also curling higher, with fresh support moving up to $1,160-$1,150.

GOLD

I often profile the SPDR Gold Trust ETF (GLD, $112.32, up $1.75) as a way to play the swings in gold, and it is showing the same technical setup. Friday’s close above $112 should get $114 in the mix. The 52-week high is north of $119. Support is at $110, followed by $108.50-$108 and the 200-day moving average.

GLD

The GLD February 114 calls (GLD160219C00114000, $1.00, up $0.60) zoomed 150% on Friday after closing at $0.40 on Thursday. These calls could have more room to run if gold continues to spike, but I don’t like chasing, and these options expire next Friday.

The GLD March 116 calls (GLD160318C00116000, $1.50, up $0.60) surged 67% on Friday on heavy volume of over 24,000 contracts. These call options would provide an extra month of time for a bullish trade to play out, with a “breakeven” price of $117.50. If GLD shares are at $119, technically, by mid-March, these options will double from current levels.

This week’s action could be tricky to trade, as China’s stock market will be closed all week. This could be good or bad for the market depending on whether or not China uses the opportunity to devalue its currency again.

There will also be some Fed talk this week, as Janet Yellen is scheduled to speak on Wednesday and Thursday. Earnings will also play a larger role in market direction given the lack of economic news due out this week.

I have talked about a lower trading range coming into play, as well as the possibility of lower lows, and I believe that a continued trading range could be in store for another week or so as long as the VIX holds 25. A close above this level should get lower lows in play, while a move below 20 should keep open the possibility of higher highs at some point this month. Tech and the small-caps also need to hold their January lows this week.

From desk to press, futures look like this: Dow (-189); S&P 500 (-22); Nasdaq 100 (-77); Russell (-11).

Chapter 1. Momentum Stocks Weekly Play List

All prices given in this update are current as of Feb. 5, 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.

 

Hansen Medical (HNSN, $2.93, down $0.26)

Original Entry Price: $4.50 (2/2/2016)

Lowered Price from Selling Options: N/A

Exit Target: $6.00

Return: -35%

Stop Target: $2.00

Action: Support is at $2.50 and the 50-day moving average. Resistance is at $3-$3.15 and the 100-day moving average.

HNSN

Twitter (TWTR, $15.72, down $1.19)

Wrote the TWTR February 15 call (TWTR160219C00015000, $1.90, down $0.70)

Original Entry Price: $17.90 (1/22/2016)

Lowered Price from Selling Options: $14.40

Exit Target: $15.00

Return: 9%

Stop Target: $14.00

Action: Support is at $15.50 and the 52-week low of $15.48. A close below these levels will likely lead to $15-$14.75. Resistance is at $16-$16.50.

The TWTR February 15 calls expire in less than two weeks. Our gains are capped at 5% if the trade is “called away” at the call’s $15 strike price on Feb. 19.

TWTR

Lattice Semiconductor (LSCC, $4.59, down $0.13)

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

Lowered Price from Selling Options: N/A

Exit Target: $9.00

Return: -32%

Stop Target: $3.50 (Stop Limit)

Action: Resistance is at $4.75-$5 and the 100-day moving average. Support is at $4.25-$4.

LSCC

Relypsa (RLYP, $18.07, down $0.28)

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

Lowered Price from Selling Options: $26.14

Exit Target: $30.00+

Return: -31%

Stop Target: $14.00

Action: Support is at $18, with risk to $16 on a close below this level. Resistance is at $19.50-$20.

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

RYLP

Planet Fitness (PLNT, $14.59, down $0.28)

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

Lowered Price from Selling Options: N/A

Exit Target: $22.00

Return: -18%

Stop Target: $12.00

Action: Resistance is at $15-$15.25 and the 50-day moving average. Support is at $14.50-$14.25.

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

PLNT

Rave Restaurant Group (RAVE, $5.79, up $0.03)

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

Lowered Price from Selling Options: N/A

Exit Target: $20.00

Return: -58%

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: -51%

Stop Target: $5.00

Action: Support $5.75, with risk to $5.50 on a close below this level. Resistance is at $6 and the 50-day moving average.

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

RAVE

Rigel Pharmaceuticals (RIGL, $2.51, down $0.18)

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

Lowered Price from Selling Options: N/A

Exit Target: $4.00-$5.00

Return: -28%

Stop Target: $2.00 (Stop Limit)

Action: Support is at $2.50, with risk to $2.40-$2.35 on a close below this level. Resistance is at $2.75, followed by $3 and the 15- and 100-day moving averages.

RIGL

Psychemedics (PMD, $10.52, down $0.18)

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

Lowered Price from dividends: $15.22

Exit Target: $15.75 (Limit Order)

Return: -32%

Stop Target: $7.75 (Stop Limit)

Dividend Yield: 5.6%

Action: Resistance is at $10.75-$11. Support is $10, followed by $9.50-$9.

PMD

Huttig Building Products (HBP, $3.22, down $0.06)

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: Resistance is at $3.30-$3.35 and the 200-day moving average. Support is at $3.10-$3.

HBP

Rambus (RMBS, $12.00, down $0.35)

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

Lowered Price from Selling Options: $16.38

Exit Target: $15.00+

Return: -27%

Stop Target: $9.00

Action: Support is at $11.75, followed by $11.65-$11.50 and the 50- and 100-day moving averages. Resistance is at $12.25-$12.50, followed by $12.75 and the 200-day moving average.

RMBS1

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