In This Issue:

Dear Momentum Stocks Weekly Subscriber,

The bears got their second-straight weekly win last week despite a major rally by the bulls on Friday to regain resistance. However, the break below the January and fresh 52-week lows by tech and the small-caps was something I previously said we should be wary of, as the technical damage continues to worsen.

The broader market also set a fresh yearly low, while the blue-chips held their October low. There could be some relief this week on a continued backtest to upper resistance, but the lower lows and lower trading range I have been warning about have played out as I anticipated.

The Dow jumped 313 points, or 2%, to settle at 15,973 on Friday. The blue-chips opened at 16,691 and got stronger throughout the session while clearing resistance at 15,800-15,900. These levels are now acting as short-term support. Additional hurdles remain at 16,000-16,200.

INDU

Coming into this year, I highlighted the previous trading range of 17,200-18,000 for the Dow from October through December. I had been warning of the prior trading range for two months and, as you can see, the “symmetrical triangle” gave me a great clue that lower lows could be in play to start 2016.

INDU2

The new trading range for the index is now at 15,600-16,600, as you can see from my latest chart work. If the bulls can clear 16,200 this week, there is a chance that 16,600 and the top of the range could be tested. A move above this level could lead to a run to 16,800 and the 50-day moving average. From there, the Dow could be in the midst of topping or a continued rally could ensue. While there is wiggle room below 15,600 on a pullback, I could get aggressive with put options on another move below this level.

INDU3

The S&P 500 surged 35 points, or 2%, to finish at 1,864. The index easily cleared the 1,850-1,860 zone, which is now short-term support, and went out at its session high. The next wave of resistance is at 1,875-1,880.

SPX

The S&P 500 had previously been in an 80-point trading range between 2,020 and 2,100 at the end of 2015 before the breakdown to a fresh 52-week low of 1,810 last week.

SPX2

The test to 1,810 and the breach below the January low of 1,812 violated a previous 75-point trading range between 1,875 and 1,950.  Obviously, the new range has been stretched, as the index closed below 1,875 on Friday. A close above this level could lead to a retest of 1,900-1,925 over the short term. There is still risk to 1,800 if the bulls fail to hold the momentum

SPX3

The Nasdaq zoomed 70 points, or 1.7%, to close at 4,337. Tech opened above the 4,300 level at the start of trading before making a slight backtest to 4,274. Short-term support at 4,300-4,275 held before a rebound to 4,340 late in the day. Near-term resistance is at 4,350-4,400.

COMPQ

The Nasdaq traded in a 250-point range between 4,900 and 5,150 from October through December before the test to a 52-week low of 4,209 last Thursday.

COMPQ2

Tech’s tumble to the 4,200 level and failure to hold the January low of 4,313 and August low of 4,292 was a bearish development. Although the Nasdaq held these levels to close last week, it violated the previous 4,500-4,800 range that held afterwards following the Aug. 24 low. If the bulls can clear 4,400 this week, there is a chance that a run to 4,500-4,600 could come into play. A move below 4,275-4,250 would be a bearish sign going forward, and I could get aggressively “short” if the index breaches 4,200.

COMPQ3

The Russell 2000 soared 18 points, or 1.9%, to end at 972. The small-caps held positive territory throughout the day to challenge resistance at 970-975. The close between these levels could lead to a run to 1,000 if the bulls can clear 980 to start the week. Support is at 960-950 on a pullback.

RUT

The Russell was mired in a 5% trading range between 1,140 and 1,200 to close out the last three months of 2015. The close below 1,140 and the bottom of the range to end the year was also a good signal that lower lows would come into play. Last week’s bottom at 943 marked a fresh 52-week low, and I have been warning that any closes below 940 could lead to panic-selling.

RUT2

A lower trading range tried to form between 1,050-1,000 throughout January, but it appears that a new 50-point range is in play between 950 and 1,000. The next 25- or 30-point upside move could lead to a test to the top of the current trading range and a possible breakout. Another 25- to 30-point drop from current levels and a close below 940 could quickly lead to a test to 900.

RUT3

The S&P 500 Volatility Index ($VIX, 28.14, up 1.85) fell nearly 10% on Friday, but it closed above 25 despite an intraday test to 24.92. I wanted to see the bulls hold 25 into the three-day weekend, and the close just outside this level is keeping me cautious. There is still risk to 27.50-30, and a close below the latter would be another bearish signal. Last Thursday’s intraday high reached 30.30. While the short-term outlook is good for a possible assault to support at 23.50-22.50, it will be hard to trust any rallies until 20 is cleared and held for several sessions. Additionally, a “symmetrical triangle” has formed, which is suggesting that a major breakout or breakdown could be coming over the next week or two.

VIX

Much of the whipsaw action last week was the result of comments made by Federal Reserve officials, changes in the price of oil and talk of negative interest rates and a recession.

As far as the Fed goes, Fed Chair Janet Yellen tried to put her best spin on the subject of rate hikes and a possible recession in her testimony to Congress last week. While she believes that there is moderate growth ahead for 2016, Yellen cautioned that financial conditions have recently become less supportive of economic expansion.

Yellen blamed the pullback in the market, higher rates for riskier borrowers and the possibility of further increases in the value of the dollar for the cloudy outlook. However, she went on to add that she didn’t believe the volatility warranted a rate cut in March. There was talk in December that the Fed would hike rates two to four times this year. I will take the under, as the odds remain high (in my book) that there won’t be a rate hike until this December, if there is another one at all.

The Fed may have shot its last bullet a few months ago when it raised rates for the first time in nearly a decade. This means that it is trapped in a corner and hoping growth picks up so it won’t have to “save the economy,” which isn’t their job anyway.

The bottom line is that the market could meander in its current range until March and the Fed’s next rate announcement. As a reminder, a negative interest rate environment is one in which the banks charge you money to keep your money with the bank. If the Fed does go down that path at some point, there will be cash hoarding and redemptions of mutual funds by investors.

Oil rebounded on Friday to post its biggest one-day gain in six years. This follows the making of a new 13-year low on Thursday. “Regular” oil prices dropped below $27 last week before recovering the $30 level on Friday. Meanwhile, Brent oil held the $30 level and, more importantly, its January low just south of $27.50. It has been easy for the talking heads to say that the market has traded in tandem with oil all year, but a chart of Brent versus Crude oil shows this has been somewhat misleading.

BRENT

While there is a slight connection, oil prices have suffered from oversupply issues, and they have not been the single-biggest factor in the decline in the stock market. Oil started to rebound late last Thursday after OPEC (Organization of the Petroleum Exporting Countries) hinted that it might be close to cooperating on a cut in crude production. While this could lead to higher oil prices down the road, the impact of a cut in production won’t have an immediate effect in the near term.

Gold ($GOLD, $1,238.50, down $8.50) may have reached a short-term peak following its run past $1,260 on Thursday. I mentioned coming into last week — with gold at $1,175 — that the move past the 200-day moving average was a bullish signal that could lead to a breakout.

GOLD

The SPDR Gold Trust ETF (GLD, $118.36, down $070) was just north of $112 ahead of last Monday’s open, and it reached a peak of $120.84 on Thursday.

GLD

The GLD February 114 calls (GLD160219C00114000, $4.10, down $1.80) that I profiled last Monday were trading for $1 ahead the open that day, and they fell 30% on Friday. These calls peaked north of $6 last Thursday and are still up over 300%. Although this wasn’t an official trade for the portfolio, take profits this morning if you haven’t already done so.

The GLD March 116 calls (GLD160318C00116000, $4.55, down $0.95) were trading for $1.50 and are still showing a gain of over 200%. Same deal here — take profits today if you are in the trade.

For new subscribers, my 10-year chart for the Nasdaq from last February showed that the 4,500 level needed to hold throughout 2015. When this level was breached in August, I knew that the bulls would struggle to set new all-time highs again for a while.

COMPQ4

I have been extremely accurate with my bullish market predictions over the past four years. I said that the Nasdaq would challenge 5,000 well ahead of time, while most Wall Street pundits and the media said it would never happen again.

As far as this week, I’m looking for the Nasdaq to recover 4,500, which is a level that needs to hold for a continued rally. I will also be highlighting the 10-year charts in the next week or two, along with my year-end predictions on where I think the market will be trading.

From desk to press, futures look like this: Dow (+173); S&P 500 (+20); Nasdaq 100 (+57); Russell (+12).

Chapter 1. Momentum Stocks Weekly Play List

All prices given in this update are current as of Feb. 12, 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.

 

Rave Restaurant Group (RAVE, $5.06, up $0.29)

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

Lowered Price from Selling Options: N/A

Exit Target: $20.00

Return: -64%

Stop Target: $5.00, lower to $4.00

 

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, lower to $4.00

Action: Lower the Stop Target for both positions to $4.00.

Support is at $4.75-$4.50 on another move back below $5. Resistance is at $5.25-$5.50.

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

RAVE

Whole Foods Market (WFM, $30.65, up $1.72)

WFM February 32 calls (WFM160219C00032000, $0.15, up $0.07)

Entry Price: $0.50 (2/10/2016)

Exit Target: $1.00 (Limit Order)

Return: -70%

Stop Target: None

Action: Shares got a muted reaction after beating estimates last Thursday, but the market pullback masked a good quarter. I mentioned that a run to $31 and the 50- and 100-day moving averages was a good possibility, but we need shares to clear these levels early this week. If so, a breakout could ensue past $32.

I will likely keep this trade open through Thursday, and we still have a Limit Order at $1.00 to close the trade. If shares can continue to rebound and the trade becomes profitable, I could take profits below $1. Either way, if I take action, I will send out a Trade Alert.

WFM

Hansen Medical (HNSN, $2.53, up $0.06)

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

Lowered Price from Selling Options: N/A

Exit Target: $6.00

Return: -44%

Stop Target: $2.00

Action: Shares recovered their 50-day moving average on Friday. Resistance is at $2.75, followed by $3 and the 100-day moving average. Support is at $2.25-$2.

HNSN

Twitter (TWTR, $15.88, up $1.57)

Wrote the TWTR February 15 call (TWTR160219C00015000, $1.13, up $0.82)

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

Lowered Price from Selling Options: $14.40

Exit Target: $15.00

Return: 10%

Stop Target: $14.00

Action: Resistance is at $16-$16.25. Support is at $15.50-$15.

The TWTR February 15 calls expire this Friday. Our gains are capped at 5% if the trade is “called away” at the call’s $15 strike price on Feb. 19. If shares fade back below $15 by Friday’s close, we can sell another deep-in-the-money call option next Monday or exit the trade if it is still profitable.

TWTR

Lattice Semiconductor (LSCC, $4.42, up $0.10)

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

Lowered Price from Selling Options: N/A

Exit Target: $9.00

Return: -35%

Stop Target: $3.50 (Stop Limit)

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

LSCC

Relypsa (RLYP, $17.48, up $0.27)

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

Lowered Price from Selling Options: $26.14

Exit Target: $30.00+

Return: -33%

Stop Target: $14.00

Action: Resistance is at $17.50-$18. Support is at $17, with risk to $16-$15.75 on a close below the latter.

I could write the RLYP March 30 call option this week to lower our cost basis in the trade. They closed Friday’s session at $0.55.

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

RYLP

Planet Fitness (PLNT, $13.68, up $0.42)

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

Lowered Price from Selling Options: N/A

Exit Target: $22.00

Return: -23%

Stop Target: $12.00

Action: Resistance is at $13.75-$14. Support is at $13.50-$13.25. The company should be announcing earnings in the next week or two. I will cover their numbers this Thursday in the Mid-Week Issue.

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

PLNT

Rigel Pharmaceuticals (RIGL, $2.47, up $0.07)

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

Lowered Price from Selling Options: None

Exit Target: $4.00-$5.00

Return: -30%

Stop Target: $2.00 (Stop Limit)

Action: Support is at $2.40-$2.35. Resistance is at $2.60-$2.70.

RIGL

Psychemedics (PMD, $11.09, up $0.66)

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: 5.6%

Action: Resistance is at $11.25-$11.50 and the 200-day moving average. Support is $10.50 and the 100-day moving average, followed by $10 and the 50-day moving average

The company reported a good quarter last week after posting a profit of $0.03 a share on revenue of $6.1 million. For 2015, earnings came in at $0.28 a share on revenue of $27 million.

Our next dividend of $0.15 a share will be paid on March 4, 2016, which will represent the 78th consecutive quarterly dividend paid by the company.

PMD

Huttig Building Products (HBP, $3.04, flat)

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

Lowered Price from Selling Options: No options available

Exit Target: $6.00+

Return: -24%

Stop Target: $2.00 (Stop Limit)

Action: Support is at $3-$2.90. Resistance is at $3.10-$3.20.

HBP

Rambus (RMBS, $11.97, up $0.10)

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: Resistance is at $12-$12.25. Support is at $11.75, followed by $11.65-$11.50 and the 50- and 100-day moving averages.

 RMBS2

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.

ZNGA

Trade on!

Signed

Rick Rouse
Editor
Momentum Stocks Weekly