11:30pm (EST)
2. Rubicon Technology (RBCN) Shares Trying to Bottom
3. Weekly Wrap Portfolio Update
4. Week Ahead
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It was a wild week that had bullish tones throughout as the bulls managed to push fresh all-time and new 52-week highs ahead of Friday’s Fed comments.
Janet Yellen is the newest bartender of the punch bowl and she kept the party going after her “hawkish” comments kept Wall Street somewhat happy.
The few analysts and talking heads that are left between now and the start of September scrambled for clues on why the market rallied. They had excuses but no answers as the suit-and-ties are not “students” of the market and don’t do homework. If they were, they would have seen the bulls clues dropped all week long by the higher highs bulls higher highs were on deck.
The Dow slipped 38 points, or 0.2%, to close at 17,001 on Friday. The blue-chips traded to a high of 17,064 on the open but languished in negative territory the remainder of the session. The bears pushed 16,984 within 30 minutes after the pop but the bulls held 17,000 following the assault. My fluff targets of 17,250-17,300 remain on deck once 17,151 and prior all-time highs trigger with the possibility of 17,500 on an overshoot. Support has been moving up to 16,900-16,800 and the 50-day MA with 16,600 serving backup.
The S&P 500 dipped 4 points, or 0.2%, to finish at 1,988. The index reached a record peak of 1,994.76 on Thursday but Friday’s high fell a point and a quarter short before a back test to 1,985. I have been calling for a run to 2,000 since early July and 2,020-2,025 could come on additional fluff. Support is at 1,975-1,970 on continued dips below 1,985 with 1,960 and the 50-day MA serving as the second layer.
The Nasdaq gained a 6 points, or 0.1%, to end at 4,538. Tech traded to 4,547 ahead of the weekend and I talked about a run to 4,550 coming once 4,500 cleared. There is further room for the bulls to run to 4,600-4,700 on a continued summer rally as long as 4,500 holds. There would be risk down to 4,450-4,400 if not. A close below the latter, or the 50-day MA at 4,416 would spell trouble ahead.
The Russell 2000 added a third-point, or 0.03%, to settle at 1,160. The small-caps kissed 1,154 on Friday’s open before trading to a high of 1,163 late in the session. A run to 1,175 is still in the mix with the possibility of 1,200 triggering on an overshoot. A close below 1,160 needs to be watched, and more importantly, the 1,150 level on any weakness this week.
The S&P 500 Volatility Index ($VIX, 11.47, down 0.39) traded up to 12.48 ahead of Wall Street’s lunch break but the bulls held 12.50. This was a bullish sign but even better was the fact the bears failed to hold 11.50. The 52-week low on the VIX is 10.28.
It was a ghost town last week on Wall Street with the talking heads complaining about “low volume”. I often mention some of the market’s best action happens while the suit-and-ties are away and I mentioned a summer rally could have them scrambling by the time they get back.
The bulls came into August looking to gain some momentum that was lost following a run to new highs at the beginning of July. A trading range followed for much of last month before volatility returned in a wicked way that lasted through mid-August. Now, a market breakout.
Monday’s S&P 500 close above the 50-day MA was followed by the blue-chips on Tuesday and were bullish signs. The Nasdaq cleared its 50-day MA the prior week and the Russell 2000 closed above its 50-day MA on Thursday while holding on Friday.
Looking back and so far, I have played this action like a fiddle but I know the music could stop at anytime. Fortunately, I have adopted a great habit of watching the band members when playing stock market musical chairs and know when to take a seat.
The extremes were in force last week as one analyst jumped on the bull bandwagon and raised their price target for the S&P to 2,300. Another stock commentator claimed the market would tank 5%-10% in September.
To make matter worse, the Fed Heads piped-up by saying technical analysis was overrated and didn’t work. This might have topped Janet Yellen’s recent claim the small-caps have reached a top as they are still down for the year. Two pennies on the subject in a second.
The M/F closes, the VIX, and the small-caps once again provided the best clues last week and there are some new clues popping up that appear bullish. The bears have left their traps at lower levels and I have marked them to warn me of risk to the downside.
Let’s cover the Monday/ Friday closes, first. The Dow has finished higher 4-straight Monday’s and will be looking to make it five to start the week. Regardless of the outcome, the market will be closed next Monday for Labor Day. If the bulls can keep this streak alive, I would expect the opening Tuesday of next week to be bullish – providing support holds on any pullbacks.
Friday’s continue to favor the bears as they have now won four of the past five. I mentioned last week this is due to geopolitical concerns but that could ease this week as there could be some positive Russia-Ukraine news on Tuesday.
Next, the VIX came into the week at 13.15. I mentioned the bulls had breathing-room up to 13.50 and wiggle-room up to 15. The bulls needed no backup as they held the 13.50 level throughout the week. There was a spike to 13.51 on Thursday’s open but volatility settled down soon afterwards as the bulls pushed a low of 11.52 ahead of the close. Friday’s high reached 12.48.
Coming into last week, I mentioned the bulls needed to get below 12.50 on Monday (check) and that a close below 11.50 would confirm new highs. I nearly got a “triple-check” discount as the VIX traded to a low of 11.52 on Thursday and closed below 11.50 on Friday. I have talked all year long about the VIX slipping to single-digits ALL year long despite most famous slick talking pros still saying it is a useless and broken index.
The bulls also won the action in the small-caps as the Russell 2000 reclaimed the 1,150 level on Monday and nearly cleared 1,160. This was the major battle I had mentioned the bulls needed to win and on Tuesday, they did. The back test to 1,150 on Wednesday was 1,152 and on Thursday the bears pushed 1,147. While there was further help at 1,140, the bulls didn’t need it with the end of week closes above 1,160.
The negative Nancy in me still points to the fact the small-caps are still in the red for the year but only by 3 points. The other major 3 indexes are solidly swimming in the green.
If any of the Fed Heads were to read THIS report on the market, they would see technical analysis works. Meanwhile, it’s up to the market to determine if the small-caps are overvalued or undervalued, not Janet. If she were to see that the other indexes are on track for double-digit gains this year while the small-caps are still down, maybe she would have said the Russell has some catching up to do. Just my two-cents on the zombies remarks in recent weeks. The main one is busy playing golf and was on a streak of playing 7 of the past 10 days before he was interrupted to make a speech.
Yes, I am tip-toeing the geopolitical events that are still in play while Wall Street and the President are away. It appears their agendas are full until the beginning of September.
Heading into the last week of August, the Dow is up 438 points, or 3% and the S&P 500 is higher by 58 points, or 3%, as well. The Nasdaq has gained 169 points, or 4%, while the Russell 2000 has advanced 40 points, or 4%.
As you can see, the bears would have to mount a serious attack to reclaim August and the bulls would have to throw the baby out with the bathwater to give back their gains. Neither event will likely happen this week but you can never discount the unknown.
Earnings season will be light and has moved to the back-burner until October. This is when 3Q earnings numbers will start to hit the Street and September will be used for raising (or lowering guidance).
This leaves geopolitical events and mother-nature in charge of the financial markets this week.
The dangling carrot to watch will be the Financial stocks. I have talked about their “lack of leadership” all year, however, they have been in a steady uptrend as you can see from the chart below and are finally “breaking out”. The recent tight trading range in June and July broke loose in August, first to the downside. Following a test to $22 at the beginning of the month, the Financial Select Spiders (XLF, $23.12, down $0.08) have gained 5% and are showing strength. They have reached a 52-week high with Friday’s peak to $23.26 over the past two weeks after bottoming at $22.10 for 3-straight sessions.
If the Financial’s can take the bull ball and run with it, continued highs could come this week.
Technical and fundamental analysis still does work when applied to the market and when you do your homework. I like to keep things simple and why I ignore the noise.
Heading from desk to press, futures look like this: Dow (+54); S&P 500 (+7); Nasdaq 100 (+17).
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2. Rubicon Technology (RBCN) Shares Trying to Bottom
Key of Technicals Used In Following Article
I did a brief snapshot of Rubicon Technology (RBCN, $6.28, up $0.09) in the Weekly Wrap on May 31, 2011 but it wasn’t a company I was ready to invest in at the time. Since then, the stock has plunged from $22.95 to $6.28. Meanwhile, competitors GT Advanced Technologies (GTAT) had soared in the past year, and Cree (CREE) had risen and fallen to close Friday at about the same price it was on May 31, as indicated in the graph below. Why has Rubicon faired so poorly? Has it bottomed and is a good buy now?
Sapphire is the second hardest material in nature after diamond, and has exceptional optical qualities, physical strength, resistance to abrasion and corrosion, and durability under extreme pressure and temperature. Thus, it is an ideal base material for semiconductor components used in optical and electronic devices. It has become the predominant base material for the production of LEDs.
On November 15, 2007, Rubicon sold 6.7 million shares to the public for $14 each, at the high end of the expected range of $12-$14, raising nearly $94 million. Shares opened for trading at $14 and closed the day at $17.50.
In 2010, the company created the industry’s first 12-inch sapphire wafer. In 2011, as the only vertically integrated manufacturer of high quality, large diameter sapphire wafers in large volumes, it was the provider of choice for manufacturers of LEDs worldwide. It shipped 250,000 six-inch wafers that year.
However, revenue peaked in 2011. LCD screens are the biggest source of revenue for the company and increased competition from Samsung and LG had pushed down sapphire prices but that is changing. Investors also believe consumer demand for LCD flat televisions will slow down and cause a reduction in growth but this could change once word spreads on the durability of the technology.
GT Advanced Technologies sells and operates advanced sapphire furnaces that produce sapphire materials. Last year, Apple and GT Advanced Technologies signed a contract for GT Advanced Technologies to operate these furnaces in one of Apple’s facilities. This caused GT’s stock to surge 400% last year.
It is my belief all smartphones and handled devices (as well as smart watches) will all soon shift to sapphire. Reportedly, Samsung has asked sapphire wafer makers like Rubicon to submit product samples. If Rubicon can get a contract from Samsung, then the stock could also surge. Also, it could get contracts from smaller Chinese smartphone manufactures.
On July 7, 2014, Rubicon reported results for the 2nd quarter:
- Revenue was $14.5 million, up from $10.6 million the same quarter a year ago.
- Earnings fell to -$0.39 from -$0.26 million the same quarter a year ago.
- GAAP gross loss rose to $7.4 million from $6.4 million the same quarter a year ago.
- Four-inch wafer core pricing increased 10% due to strong demand from the LED market.
It seems that revenue has bottomed and is starting to rise. This is a good sign, but I’m watching expenses as they are growing faster than revenue. Revenue expected for the 3rd quarter of this year seems too low and could be a surprise when the company confesses to the suit-and-ties. Earnings estimates are predicting a bottom in the 3rd quarter and their next announcement isn’t due until late October. Analysts expect the company to lose $0.41 per share on $9 million in revenue when they do step up to the plate.
At $6.28, the stock is just above its low target of $5.25 made by the 9 analysts recorded by Thomson/First Call. Mean is $10.14, median target is $8.50, and high target is $17.00. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock is 2.5, unchanged a week ago.
| Current Month | Last Month | Two Months Ago | Three Months Ago | |
| Strong Buy | 2 | 3 | 3 | 2 |
| Buy | 2 | 3 | 3 | 3 |
| Hold | 5 | 3 | 3 | 2 |
| Underperform | 1 | 1 | 1 | 1 |
| Sell | 0 | 0 | 0 | 1 |
I mentioned in the Daily newsletter that sapphire is in high demand with the new iPhones and other devices coming to market. I mentioned GT Advanced Technologies (GTAT, $18.15, up $0.49) as another stock I am watching as a breakout candidate on the sapphire demand but I’d rather play options on it instead of buying the stock as the profits are more explosive with options.
With the Weekly Wrap, I’m looking at Rubicon again as a “safer” and “cheaper” way to play this demand and I can lower the cost basis of a possible trade by selling call options.
I normally shy away from earnings trades as they can be risky and a lot has to go right for you to make a serious profit. I have only recommended 7 earnings trades this year for the Daily. The research involved in an earnings trade can be immense as you want to be in a story before Wall Street and the public knows about it (Think PZZI below). Besides estimating if a company will beat-and-raise, there is the worry of guidance and the overall market in general. Other factors could include competition as executive changes at a company. In other words, all of the stars have to align just right to hit an earnings option trade.
However, if Rubicon shares have bottomed and start to show an uptrend into earnings then there could be an earnings trade here. I might consider one for the Daily as the suit-and-ties would be quick to upgrade the stock on any upside surprises and we would already be in the stock. In the meantime, watch the Rubicon December 8 calls (RBCN141220C00008000, $0.35, up $0.05) and the 2015 March 8 calls (RBCN150320C00008000, $0.55, up $0.05) as possible Weekly Wrap LEAP option trades.
If I take action this week on buying the stock or options, I will send out a New Trade Alert.
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3. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 8/22/14)
The Weekly Wrap Closed Trade Track Record for 2014 is 22-4, or 85% win rate (107-11, or 91% win rate, overall since the start of 2011)
Current Trades
Apple (AAPL, $101.32, up $0.74)
Original Entry Price: $98.40 (7/28/14)
Lowered Price from Selling Options/ Dividends: $97.93
Exit Target: $120
Return: 3%
Stop Target: $99 (Stop Limit)
Dividend Yield: 2.1%
Action: Shares came within 7 cents of clearing its previous high of $99.44 on Monday. On Tuesday, shares cleared and closed above $100 to $100.53. Wednesday’s peak reached $101.09 before a close slightly above $100. This level held as fresh support on Thursday’s dip to $100.11. Friday’s high reached $101.47.
The September 105 calls (AAPL140920C00105000, $1.05, up. $0.10) look tempting to sell at current levels but I don’t want to “collar” the trade if there is more gains to come.
Shares could be headed to $105-$110 over the near-term so I don’t want to sell a call option too early. However, if shares fall back below $100 on concerns the iPhone 6 launch could be delayed, I might use these options to lower the cost basis of the trade, or close it. I have a Stop Target in place at $99 that I have made a Stop Limit to keep the trade profitable while I waffle.
The company paid a dividend of 47 cents on 8/7/2014 to lower the cost of the trade to $97.93. My first Apple trade for the Weekly Wrap made subscribers 6% following the stock-split and when I became aggressive in adding Apple as a core holding for the portfolio.
Pizza Inn Holdings (PZZI, $8.03, up $0.05) Stock Trades
Original Entry Price: $8 (8/13/14)
Lowered Price from Selling Options: No options available
Exit Target: $16
Return: 0%
Stop Target: $5
Original Entry Price: $6 (7/9/14)
Lowered Price from Selling Options: No options available
Exit Target: $10, raise to $12
Return: 34%
Stop Target: $7.50, raise to $7.75 (Stop Limit)
Original Entry Price: $8.10 (10/11/13)
Lowered Price from Selling Options: No options available
Exit Target: $12+
Return: -1%
Stop Target: $5
Action: I have raised the Stop Limit on the second position from $7.50 to $7.75. This would ensure nearly a 30% return if triggered. I still want to keep longer-term positions open as core holdings.
Shares traded up to $8.22 early in the week before fading below $8 and testing a low of $7.85 on Thursday. There is a trading range forming with risk to $7.50 on a dip below $7.75. If Pizza Inn can clear $8.25 a run to $8.50 and fresh 52-week highs could be in store.
Previous comments:
The company recently announced further expansion plans. Pizza Inn is now on track for 200 stores. I believe this will be a $15-$20 stock in 1-2 years with insiders and mutual funds owning nearly 40% of the company. I have already recommended 2 profitable trades for the Weekly Wrap when shares were near $3.
Huttig Building Products (HBP, $4.15, up $0.13) Stock Trade
Original Entry Price: $4 (8/13/14)
Lowered Price from Selling Options: No options available
Exit Target: $6+
Return: 4%
Stop Target: $2 (Stop Limit)
Action: Shares are on the verge of a major breakout or breakdown. A close above $4.20 and the major MA’s would be super bullish. There is risk to $3.75-$3.50 on another close below $4.
Previous comments:
This is a small company with a big presence in the housing industry and a market-cap just south of $100 million. Huttig has been around for over 100 years and there is little Wall Street coverage with only 1 analyst following the stock.
This is a “cheap” way to play the housing sector with a quality stock. Despite the fits and starts the industry has been going through the past few years, this is a solid company with an improving balance sheet.
CubeSmart (CUBE, $18.74, down $0.11) stock trade
Original Entry Price: $18.62 (6/23/13)
Lowered Price from Selling Options/ Dividends: $18.49
Exit Target: $22
Return: 1%
Stop Target: $18.60, raise to $18.65 (Stop Limit)
Dividend Yield: 2.8%
Action: Shares may have peaked following a run to $19.20 early in the week. The Stop Limit of $18.60 held all week but Friday’s fall to $18.64 came within 4 cents of triggering. I have raised the Stop Limit to $18.65.
I would like to see $19 clear and hold to start the week, otherwise, the position could close on further weakness.
The company paid a dividend of 13 cents on 6/27/2014 to lower the cost of the trade to $18.49.
Limelight Networks (LLNW, $2.28, down $0.05) stock trade
Original Entry Price: $3.00 (6/9/14)
Lowered Price from Selling Options: None
Exit Target: $5
Return: -24%
Stop Target: $1
Action: Shares are right at their 200-day MA with Friday’s close on the low. There is further risk to $2 on a drop below $2.20. Near-term resistance is at $2.40-$2.50 and the 100-day MA.
Previous comments:
Shares traded to a high of $3.25 on 6/20 after Tuition Build offered roughly $645 million, or $6.55 a share, for Limelight. The company dismissed the Silicon Valley’s private-equity firm’s offer after basically saying they weren’t experienced enough to run the business.
I have been suggesting a buyout offer would come for Limelight Networks with the company’s cheap market cap and said they would make a very luscious takeover target.
Its litigation issues have decreased dramatically following their recent win against AKAM and they are open to a much bigger marriage.
Roth Capital lifted its Price Target for Limelight Networks to $4.50 from $3 following its recent court win against AKAM. I have already covered the acquisition appeal of the stock and Captain Obvious echoed those comments last week. I was hoping shares would go unnoticed by the suit-and-ties and perhaps they have been reading my updates but I have a much higher target for Limelight. I have said shares could make a run to $5, possibly $8 if the takeover talk heats up over the summer.
Apple, Google, Facebook, Microsoft and Verizon, just to name a few, could take a look at this company as it looks to build out its CDN network. Limelight has a market cap of just $280 million and would be a great acquisition target for Apple.
Hercules Offshore (HERO, $3.15, down $0.04)
Original Entry Price: $4.50 (5/30/14)
Lowered Price from Selling Options: $4.20
Exit Target: $7
Return: -25%
Stop Target: $2
Action: Shares continue to hold $3.10-$3 but a drop below the latter could lead to $2.75. Resistance at $3.30.
On 5/30/2014 I recommended buying shares at $4.50 and selling the July 4.50 calls for 30 cents to lower the cost basis to $4.20.
Alexza Pharmaceuticals (ALXA, $3.50, down $0.04) Covered Call Trade
Sold September 5 calls (ALXA140920C00005000, $0.05, flat)
Original Entry Price: $5.53 (3/4/14)
Lowered Price from Selling Options: $4.68
Exit Target: $6+
Return: -25%
Stop Target: $3
Action: Alexza shares are trying to bottom following the prior low of $3.41 the prior week. There is further risk to $3.25-$3 on a close below $3.40. Resistance is at $3.60-$3.70 and a close above these levels would be bullish as it could force some short-sellers to cover.
On 3/4/2014 I recommended buying shares at $5.53 and selling the June 6 calls for 50 cents to lower the cost basis to $5.03.
On 6/23/2014 I recommended selling the September 5 calls for 35 cents to lower the cost basis of the trade to $4.68. If shares are called away at $5 by mid-September the trade will make 7%.
Discovery Laboratories (DSCO, $1.86, flat) Stock Trade
Original Entry Price: $1.68 (8/13/14)
Lowered Price from Selling Options: $1.68
Exit Target: $4.50-$5
Return: 11%
Stop Target: None
Sold October 2 calls (DSCO140101900002000, $0.30, flat) Covered Call Trade
Original Entry Price: $2.42 (1/7/14)
Lowered Price from Selling Options: $1.67
Exit Target: $4.50-$5
Return: 11%
Stop Target: None
Action: Shares cleared their 50-day MA at $1.72 to start the week before finishing flat. Tuesday’s trip to $1.79 and close at $1.75 was bullish and led to Wednesday run to $1.88. Thursday’s high reached $1.90 before the end of week closes at $1.86. I said if shares cleared $1.75 and the 50-day MA they could work their way back to $2. So far, so good as long as this level now holds on any back tests.
The company recently announced Phase 2 trials for Aerosurf have begun and beat earnings estimates on higher revenue.
On 1/7/2014 I recommended buying shares at $2.42 and selling the April 3 calls for 25 cents to lower the cost basis to $2.17.
On 4/30/14 I recommended selling the June 3 calls for 15 cents to lower the cost basis for the trade to $2.02.
On 6/23/2014 I recommended selling the October 2 calls for 35 cents to lower the cost basis of the trade to $1.67. If shares are called away at $2 by mid-October the trade will make 20%.
Trades on HOLD: AKS Steel Holding (AKS), DryShips (DRYS), Rambus (RMBS), Bebe Stores (BEBE), Vivus (VVUS), Dendreon (DNDN), Galena Biopharma (GALE) LEAP Trade/ Stock Trade, Zynga (ZNGA)
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4. Week Ahead
Here is a chart of the events for the week ahead:
