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This Trade Calls for a Little Small-Cap Magic

MagicJack (CALL) stock makes a powerful statement with its post-earnings rally. Here's how much farther you can ride this stock.


Shares of voice-over-Internet-protocol telephone services company MagicJack VocalTec Ltd (NASDAQ:CALL) rallied about 25% last week following the company’s latest earnings report. CALL stock is no stranger to volatility — it has seen more swings than a playground over the years.  However, last week’s price action did a lot of good, technically speaking, as it broke MagicJack shares out of their 2015 range on good momentum.

Beat the BellActive investors and traders could look to play this small-cap stock to the long side.

For its second quarter, MagicJack doubled Street estimates with profits of 38 cents per share, and did so on revenues of $25.4 billion that fell shy of expert expectations. CALL continues to operate without any debt as of early June and has cash and cash equivalents of $82 million. MagicJack also is undergoing a share repurchase program under which it has so far bought back about $10 million worth of shares.

To be clear, I don’t discuss small-cap stocks often, but when I come across an opportunity with a technically sound stock whose products people are familiar with (MagicJack is well-known through its TV ads), then I feel compelled to share the idea.

MagicJack (CALL) Stock Charts

Looking at CALL stock through a multiyear lens, we see that it clearly has exhibited plenty of volatility. As recently as the spring of 2014, MagicJack was a $24 stock. Twelve months later, it was reduced to a sub-$7 stock.

More notably, however, after a steep drop into late 2014, CALL stock — much like the broader stock market, though the two don’t share much correlation — began to consolidate in a choppy sideways range.

Momentum as represented by the Relative Strength Index (RSI), however, made a series of higher lows all year that ultimately allowed the stock to jump higher last week following MagicJack’s earnings report.

Last week’s rally pushed CALL stock out of its year-to-date range and above the upper Bollinger Band. MagicJack is not out of the woods yet, but last week’s move was a strong statement by the bulls.

magicjack call stock weekly chart
Click to Enlarge

Zooming in on the daily chart, we see that post-earnings rally last week came in the form of an up-gap that quickly pushed CALL stock above its 100-day (blue) and 200-day (red) simple moving averages. MagicJack had not traded above its 200-day MA since June 2014.

The rally continued into Thursday, which also pushed the stock above horizontal resistance (black line) that has acted as the upper end of the trading range all year. While CALL stock might be somewhat overbought in the immediate term, the path of least resistance through a multiweek/month lens looks to be higher.

magicjack call stock daily chart
Click to Enlarge

Active investors and traders could look to buy CALL stock around the $8.30-$8.50 area in reduced size with a price target near $10. Any sharp reversal of last week’s rally should be respected.

Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.

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