Dear Momentum Options Subscriber,
Semiconductor stocks have been on a roll this year, and Wall Street is wondering if further gains are ahead. There are a number of ways to play the sector, as stocks are still at attractive entry levels despite the worry.
While there are different sub-sectors in the semiconductor space, their products are usually comprised of silicon and a “chip.” These chips, or devices, can be found in your appliances, cars, computers, smartphones, tablets and even medical equipment.
The semiconductor industry can be fickle based on supply and demand, and the recent warning from Intel (INTC) is a good example. The company cut its first-quarter revenue outlook mid-month based on weaker personal-computer demand.
The “connectivity of everything” will continue to evolve, and semiconductor stocks are playing a major role in how things connect. Consolidation in the industry is increasing, and the deal this month between NXP Semiconductors (NXPI) and Freescale Semiconductor (FSL) highlights some of the action this year.
Some of my favorite players — and less expensive names — include Atmel (ATML), in which we recently booked a 45% profit by playing bullish call options, and one of my current trades, Cypress Semiconductor (CY).
Atmel made a strong move past $9 earlier this month on the NXP/Freescale merger news after Goldman Sachs (GS) said the likelihood of Atmel getting a takeover bid had increased. Although shares fell 4% on Monday, Atmel is worth another look.
Meanwhile, Cypress Semiconductor slipped 2% to start the week. Shares have been in a strong uptrend following December’s breakout and have been holding their 50-day moving average ever since.
Shares could easily reach $18-$20 over the near term on momentum. For value investors seeking yield, the company currently pays a $0.44 dividend, which equates to nearly a 3% yield at current levels.
The recent 52-week high of $16.25 triggered earlier this month, and the company will announce earnings during the second week of April. This could be a positive catalyst for higher highs, and I’m using bullish call options to play the possible upside. I would view any pullbacks in CY as a buying opportunity.
As the market makes the turn, the Dow is up 2 points to 18,118, while the S&P 500 is climbing a point to 2,105. The Nasdaq is higher by 17 points to 5,028, and the Russell 2000 is advancing 3 points to 1,267.
I have updated our current trades, so let’s go check the tape.
Momentum Options Play List
Closed Momentum Options Trades for 2015: 25-6-1 (78%). All trades are dated and time stamped so new subscribers can look at the past history to see how the trades have played out.
Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades. Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the 9 a.m. and 12 p.m. – 1 p.m. updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.
All prices given in this update are current as of 12:25 p.m. EST.
Every new Momentum Options recommendation is listed with the price at which I entered my own position. If the price is slightly different than my recommended entry or exit price when you receive the alert, don’t let that keep you from getting into or out of a trade. Occasionally, you might even get a better “fill” price than what is posted in the Open Trades and Closed Trades.
Dot Hill Systems (HILL, $5.31, up $0.10)
HILL June 5 calls (HILL150619C00005000, $0.70, up $0.10)
Entry Price: $0.65 (3/24/2015)
Exit Target: $1.30
Return: 8%
Stop Target: None
Action: The shares have traded to a fresh 52-week high of $5.38 today. I’m expecting a move north of $6 on continued momentum. Support is at $5.
Cypress Semiconductor (CY, $15.50, up $0.14)
CY April 16 calls (CY150417C00016000, $0.45, up $0.05)
Entry Price: $0.40 (3/18/2015)
Exit Target: $0.80
Return: 13%
Stop Target: None
CY June 16 calls (CY150619C00016000, $0.90, up $0.05)
Entry Price: $0.75 (3/18/2015)
Exit Target: $1.50
Return: 27%
Stop Target: None
Action: Support is at $15.25, followed by $15 and the 50-day moving average. Resistance is at $15.75-$16. The 52-week high is at $16.25.
Veeva Systems (VEEV, $26.84, up $0.47)
VEEV April 29 calls (VEEV150417C00029000, $0.40, up $0.05)
Entry Price: $0.60 (3/18/2015)
Exit Target: $1.20
Return: -33%
Stop Target: None
Action: Support is at $26-$25. Resistance is at $27 and the 200-day moving average. Shares are volatile, and I still like the trade as long as $25 holds.
Gogo (GOGO, $19.84, down $0.87)
GOGO April 23 calls (GOGO150417C00023000, $0.20, down $0.10)
Entry Price: $0.55 (3/17/2015)
Exit Target: $1.10
Return: -64%
Stop Target: None
Action: GOGO’s earnings estimates were lowered this morning by Morgan Stanley (MS) after management met with the brokerage firm.
Short-term support is at $19.50-$19 on the drop below $20. The company’s CEO will be on CNBC after the close to tell Wall Street why their Wi-Fi service matters. This could help stem today’s losses, but I’m watching this position carefully.
Yahoo! (YHOO, $44.53, down $0.19)
YHOO April 47 calls (YHOO150417C00047000, $0.40, down $0.02)
Entry Price: $0.80 (2/26/2015)
Exit Target: $1.60
Return: -50%
Stop Target: None
Action: Near-term support is at $44. Continued closes above $45 should lead to a run to $47-$48 and the 100-day moving average.
American Express (AXP, $81.64, down $0.64)
AXP April 87.50 calls (AXP150417C00087500, $0.13, down $0.04)
Entry Price: $0.56 (2/25/2015)
Exit Target: $0.70 (Limit Order)
Return: -77%
Stop Target: None
Action: Support is at $81-$80. Resistance is at $83.50-$84.
The company is hosting an “investor day” on Wednesday that could provide a catalyst for the stock. Wall Street will be eager to hear more details on the impact of the loss of its partnership with Costco (COST) and what they plan to do to replace that business.
A deal involving Apple Pay would be beautiful news, as American Express needs to make up for lost revenue. A possible update on earnings will be key to determine if this trade can make a rebound.
Flextronics (FLEX, $12.45, up $0.09)
FLEX April 12 calls (FLEX150417C00012000, $0.60, up $0.06)
Entry Price: $0.67 (2/24/2015)
Exit Target: $1.35
Return: -10%
Stop Target: None
Action: Short-term resistance is at $12.50. The 52-week high is at $12.48. A close above these levels could lead to a run at $13. Support is at $12, followed by $11.75 and the 50-day moving average.
Trades on Hold — other 2015 Portfolio Open positions (2): These are trades that are still open in the portfolio but are down over 50%. They have longer expiration dates and are on “hold” but are not worth mentioning until they turn around. This means I would not open any new positions. I’m still keeping track of the trades and will record the results accordingly when the trade closes or if the options expire. Click on the Open Trades and Closed Trades pages to see all open and closed positions.
Marvell Technology (MRVL) May 18 calls (from February 2015) — Continue to hold.
BlackBerry (BBRY) June 13 calls (from March 2015) — Continue to hold.
Trade on!
Rick Rouse
Editor and Chief Options Strategist
Momentum Options