In This Issue:

Dear Momentum Stocks Weekly Subscriber,

The bulls showed their usual April strength last week as the market broke out to fresh highs for the year. Friday’s slight pullback in the major indices caught all the media attention following another tight session. However, what was missed, or not reported, by the talking heads was the strength in the small-caps and the deflating VIX.

These two bullish signs were good to see in an otherwise boring session. This week’s action will surely get more attention, as a number of high-profile and blue-chip companies announce first-quarter earnings. The bears will be trying to get back into the game, but they may have to wait another week or two, as higher highs are likely still in play.

The Dow slipped nearly 29 points, or 0.2%, to end at 17,897 on Friday. The blue-chips tested a high of 17,937 on the open but spent the majority of the session underwater. Resistance is at 17,950-18,000, and a move above the latter would likely lead to 18,200-18,350 over the near term. Support is at 17,800, followed by 17,600-17,550. Friday’s low tapped 17,867.

The S&P 500 fell 2 points, or 0.1%, to settle at 2,080. The index opened a point higher to kiss 2,083, but that was it. Resistance remains at 2,090-2,100. The backtest to 2,076 held support at 2,075-2,070. There is additional help at 2,050-2,045, but a close below 2,040-2,035 would be a bearish development.

 

The Nasdaq dropped 7 points, or 0.2%, to finish at 4,938. Tech opened lower before making a run to resistance at 4,950 during the first half of trading. Continued closes above this level should keep 5,000 in play. Support at 4,925-4,900 held following the backtest to the top of this range. A move below 4,850 and the 200-day moving average would likely signal a short-term market top.

 

The Russell 2000 gained 2 points, or 0.2%, to close at 1,130. The small-caps held support at 1,125-1,120 following the bears’ push to the top of this range. A close below the latter could lead to a retest of 1,110-1,100. The 3-point dip was followed by a 4-point run to 1,132. Short-term resistance at 1,135-1,140 held, but the pop above the 200-day moving average was a very bullish sign.

 

The S&P 500 Volatility Index ($VIX, 13.62, down 0.10) stayed slightly elevated on Friday, but it was nothing to alarm the bulls. The bears’ weak trip to 14.19 held resistance at 14.50-15, but a move above the latter would be a red flag. The mid-day low tapped 13.58 but fell shy of support at 13.50-12.50.

 

Here were my closing thoughts from the April 4 Issue:

“There could be another mini trading range developing into first-quarter earnings season if the start of the week is not strong. The bulls got off to a good start for April, which is historically the Dow’s best month of the year, as it has gained an average of 1.9% during the month since 1950. I’m looking for the small-caps and tech to lead the way higher this week and for the rest of April, as they have lagged the other major indices.”

The Dow is now up over 472 points, or over 2%, for the year, while the S&P 500 has gained nearly 37 points, or roughly 2%. The Nasdaq is down 70 points, or nearly 2%, and needs to clear 5,008 to show green for 2016. The Russell 2000 is close to showing a gain for the year on continued closes above 1,136.

While some of the talking heads were zoned in on Dow 18,000 late last week, there has been little talk of the Nasdaq and a possible return to the 5,000 level. The Dow hasn’t broken 18,000 since last July, and nobody is talking Nasdaq 5,000, but that could change this week.

The most important development last week was the break out of the mini trading ranges by the major indices. Although it’s still early, this action was very bullish, and it is clearly visible on the aforementioned charts.

A mini “golden cross” has formed on the Dow, with the 50-day moving average now above the 100-day moving average. There is just a 4-point difference between the 50-day moving average and 100-day moving average on the S&P 500.

Meanwhile, the Nasdaq has been hovering above its 200-day moving average since it gapped higher last week. The Russell 2000 cleared its 200-day moving average on Friday, technically, before closing just below this level.

I have been talking about the slack in the small-caps throughout the year, and continued closes above 1,140 could lead to a run to 1,180-1,200. This would represent another 5%-6% and a return to the November and December highs.

Obviously, this kind of action on the Russell 2000 would be a rising tide that lifts all boats, which is something I would love to see happen. I usually do major technical analysis with my charts every few months, and I will be updating them again at some point in May.

Remember these numbers going forward, and write them down on your trading desk. The uptrend lines I currently see have the bulls in charge as long as the major indices hold the following levels going forward on any pullback:

  • Dow: 17,600-17,500
  • S&P: 2,050-2,040
  • Nasdaq: 4,825-4,800
  • Russell: 1,110-1,100

This could change on higher highs, but these levels will signal when it is time to start lightening up on long positions.

To help illustrate how bullish I’ve been since the February lows, I do want to cover some of my thoughts from mid-March and the highlights of my last major technical update from February. Here were my thoughts from the March 14 update:

“My timing since the February low has been spot on, but picking market tops and bottoms is never an easy task. The blue downtrend line in the chart below was at 1,885-1,900, and I talked about how the major moving averages would likely come into play in the coming weeks. Here is a look at the S&P 500’s chart from the Feb. 16 Issue:

 

I’m hoping to pick a top to the current rally, but circumstances can change for the better or worse. Having said that, I have repeatedly called for a run towards the major moving averages that should last through mid-March, and Friday’s action verified my stance once again.”

I also want to include the chart work for the Russell 2000 I did following its close just below 972, along with my thoughts from the Feb. 16 Issue.

 

“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.”

With the breakout to fresh highs last week, the gains off of the February lows have increased. The Russell 2000 is up almost 20% from its mid-February intraday low of 943. The 183-point gain has made it extremely hard for fund managers to put “new” money to work, as many of them have missed the bullish boat.

I mentioned throughout last year and coming into 2016 that most of the “professional” money managers had a terrible 2015 and blamed their lackluster results on the market and a weak global economy. In fact, I often say that the slick-talking pros have no clue how to trade volatility or make money in a down market.

We have done well staying patient over the past two weeks and, hopefully, our bullish bets pay out over the rest of the month and into May. We still have four trades in play, and I want to keep the portfolio light. I will also be introducing you to a new trading strategy in the coming weeks that I hope you stick around for.

I mentioned that the next few weeks could be bullish, but nothing is a given when it comes to trading the market. For insurance, I have been tracking bearish trades for June and July as overvalued stocks become even more expensive.

The rally off of the mid-February lows has been broad-based, with all of the major averages showing no shame in their games. Tech, the small-caps, metals and the financial stocks have performed especially well.

The prior two-week trading range was torture for Wall Street, and it caught many investors off guard. This caused them to bail on the bulls. I often like to remind myself about one of Wall Street’s old adages from time to time, and that is “never short a dull market.”

From desk to press, futures look like this: Dow (-63); S&P 500 (-9); Nasdaq 100 (-17); Russell (-5).

Momentum Stocks Weekly Play List

All prices given in this update are current as of Apr. 15, 2016. I hereby disclose that I will be participating in the following trade(s).

The Momentum Stocks Weekly Closed Trade Track Record is 2-8, for a 20% win rate for 2016 (146-33, or 82% win rate, overall since the start of 2011)

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

 

Lattice Semiconductor (LSCC, $5.65, down $0.08)

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

Lowered Price from Selling Options: N/A

Exit Target:  $9.00

Return: -17%

Stop Target: $3.50 (Stop Limit)

Action: Shares made a quick backtest to support at the 50- and 100-day moving averages to end last week. The technical setup is still bullish, although a close below $5.50 would be a bearish development. Resistance is at $5.75-$6.

 

Planet Fitness (PLNT, $15.78, up $0.34)

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

Lowered Price from Selling Options: N/A

Exit Target: $22.00

Return: -12%

Stop Target: $12.00

Action: Resistance is at $15.75-$16. Support is at $15-$14.75 and the 50- and 100-day moving averages.

 

Rave Restaurant Group (RAVE, $5.30, down $0.22)

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

Lowered Price from Selling Options: N/A

Exit Target: $20.00

Return: -62%

Stop Target: $4.00

 

Original Entry Price (Second Position): $11.70 (8/17/2015)

Lowered Price from Selling Options: N/A

Exit Target: $13.00+

Return: -55%

Stop Target: $4.00

Action: Resistance is at $5.50-$5.60 and the 100-day moving average. Support is at $5.25 and the 50-day moving average, followed by $5.15-$5.

 

Trade on!

Signed

Rick Rouse
Editor
Momentum Stocks Weekly