Option Investor

Daily Newsletter, Saturday, 5/9/2015

Table of Contents

  1. Market Wrap
  2. New Plays
  3. In Play Updates and Reviews

Market Wrap

Goldilocks Lives!

by Jim Brown

Click here to email Jim Brown

The payroll report on Friday surprised quite a few people with a number that was Goldilocks perfect. Not too hot and not too cold. The futures exploded higher and a major short squeeze was born. Unfortunately there was no follow through.

Market Statistics

All the market gains came in the first 10 minutes of trading and there was no follow through with additional buying as the day progressed. Volume died about 10:AM and all the indexes came to a dead stop at resistance.

The economy added +223,000 jobs in April according to the Nonfarm Payroll report. The consensus estimate was for a gain of +220,000 but I don't know where they got those estimates. The consensus for traders was a lot lower in the 165,000-185,000 range. The ADP Employment on Wednesday only showed a gain of +169,000 and that is what the market was expecting for the Nonfarm report. The ADP consensus was for a gain of +200,000 jobs.

The revisions were critical as well. The already low estimate for the March payrolls at +126,000 was cut again to a gain of only +85,000. The February number was revised only slightly lower by -2,000 to +266,000. That brings the three month average to +191,000. That is a decent trend but still too low for the Fed to hike rates. More than one Fed head has said they would like to see jobs over 200,000 for "several months" before they raise rates.

The combination of the decent April report plus the decline in the 3 month average put the numbers right in the middle of the Goldilocks zone. With the majority of investors expecting a much lower number after the ADP miss on Wednesday a monster short squeeze was born. Over the last ten years covering more than 120 ADP reports they have only missed the estimates that bad a total of six times.

The total unemployment rate fell to a post recession low of 10.8% and the government managed unemployment rate declined to -5.443%. The labor force grew by +166,000 and the labor force participation rate rose +0.1% to 62.8%. Household employment, separate from the Nonfarm survey, rose +192,000, up from +34,000 in March.

Those unemployed for less than five-weeks rose +241,000 to 2.7 million. Those employed part time because they can't find a full time job was 6.6 million and flat with March.

Professional and business services added +62,000 jobs, services added +16,000, computer systems design and related services +9,000, business support services +7,000 and management consulting +6,000 jobs. Health employment rose +45,000 and construction +45,000 but nonresidential construction employment fell -8,000. Transportation and warehousing added +15,000. Mining and energy employment declined another -15,000 bringing the total year to date to -49,000 jobs. Manufacturing only added +1,000 jobs, which suggests the strong dollar is still impacting that sector.

Average hourly earnings rose only +0.1% and March was revised down from +0.28% to +0.2%.

The labor market rebounded somewhat but the layoffs in the energy sector and the decline in manufacturing employment continued to be a drag. If May employment is well above 200,000 like the February number at 266,000 then there will be a risk of a rate hike in June. Rumors are circulating that the Fed may hike an eighth of a point just to get the process started. That amount would have no impact on the economy and could be easily digested by the market depending on what language accompanied it.

The best comment I heard on Friday came from Larry McDonald, managing director at Societe Generale. He wanted a number well over 300,000 jobs. He said we should not be excited by an economy that is averaging +191,000 jobs after zero interest rates for six years, $4 trillion in QE and $20 trillion and rising in global stimulus. He said when the financial crisis began in 2008 we had 23 million full time jobs in America. Today there are only 21 million. Over that same period the population has grown more than 20 million. In April full time jobs declined by -252,000, the most in nearly a year, while part time jobs rose by +437,000, the most since last June. There is something seriously wrong with that scenario and we should not be celebrating a Goldilocks number.

On the positive side the weekly Jobless Claims have declined to post crisis lows at 265,000 for the last two weeks. Numbers under 270,000 have not been seen in more than 15 years. This suggests the payroll numbers for May could be strong if this trend continues.

The other economic report on Friday was the Wholesale Trade inventories for March. Inventories rose only +0.1% compared to +0.3% in February with nondurable goods inventories declining -0.4%. Sales fell -0.2% compared to -0.6 in February. Nondurable sales declined -1.5%. Petroleum inventories declined -5.1% due mostly to the drop in oil prices, and farm products declined -7%.

Prior month numbers were also revised lower. This is happening in multiple reports suggesting the economy is not as healthy as previously believed. The decline in the Wholesale Trade report knocked the real time GDP estimates for Q1 down to a contraction of -0.5% compared to the -0.3% earlier in the week. The estimate for Q2 GPD growth was +0.8% but that was before the Wholesale Trade report. The GDPNow page won't be updated until next week. It would not take much in the way of weak economics in the days ahead to push Q2 into the contraction column as well. That would really upset the Fed's rate hike plans.

The economic calendar for next week is fairly uneventful. The retail sales for April is probably the highlight followed by the Producer Price Index. The retail sales will tell us if the consumer has begun to part with their gasoline savings. Now that gasoline prices are back up to $2.65 and rising the consumer is going to be even more constrained on their spending over the summer months.

The split calendar is starting to expand. Insys Therapeutics and IDEXX Labs both announced a 2:1 split. EMC Insurance, not EMC Corp, announced a 3:2 split. I expect even more companies will be announcing in the weeks ahead. It is a financial engineering move that can give companies with a high stock price some headlines in the market and make their stocks more attractive to the individual investor. There are so many stocks today with huge triple digit prices that it could provide a surge in splits. When Netflix announces their split ratio in June, which is probably going to be huge like 5:1 or even 10:1, it could trigger several other companies to announce splits.

The continued weak economics are keeping the projections for future interest rates very low. The market forecast for Fed funds rates is only 1.0% at the end of 2016 and 1.5% at the end of 2017. Anyone with any experience in the Fed rate hike cycle understands that this is ridiculously low and the market is going to react negatively as those forecasts are corrected. About the only way the Fed can force the market to correct its forecast is to actually hike rates. The Fed has been so dovish for the last six years that nobody believes they are actually going to hike anytime soon. Eventually there will be the equivalent of a taper tantrum when the harsh light of reality begins to dawn.

You've got mail! AOL, remember them? The company reported earnings of 34 cents compared to estimates for 32 cents. Revenue rose +7% to $625 million and well over estimates of $594 million. Global advertising revenue rose +12%. An 11% decline in subscribers was offset by a 7% increase in pricing. AOL Platform revenue rose +21% as a result of the sale of premium formats and increased video usage across the various platforms. Shares spiked +10% on the news.

WhiteWave Foods (WWAV) reported earnings of 24 cents that beat estimates of 22 cents. Revenue of $911.1 million was slightly under estimates of $913 million but investors did not seem to mind. The company raised its forecast excluding China to 23-25 cents compared to analyst expectations for 25 cents. They raised full year estimates from $1.08-$1.12 to $1.10-$1.14. Analysts were expecting $1.11. WhiteWave has a portfolio of organic brands including Silk nondairy products, Land-O-Lakes, Earthbound Farms salads, International Delight and Horizon dairy products.

Ebix Inc (EBIX) reported earnings of 51 cents that rose +28%. Revenue rose +24% to $63.8 million. Gross margins were 32%. I could not find any analyst estimates but investors liked the results and powered the shares to a +13% gain. Ebix provides software and e-commerce solutions to the insurance industry.

Tableau Software (DATA) reported earnings of 8 cents that easily beat estimates for a loss of -2 cents. Revenue of $130.1 million also topped estimates for $115.1 million. Tableau provides data analytics software that helps employees analyze data without the need for costly IT projects to create customized reports. The company's closest rival is Qlik Technologies (QLIK) with Microsoft and Salesforce.com well behind them in this field.

Bluebird Bio (BLUE) reported earnings on Wednesday that missed estimates by 14 cents. However, enrollment in multiple drug trials and progressions on the drug front powered the company to a $24 gain on Thr/Fri. Other companies are wishing they could miss on earnings and soar to new highs. This one is due for some profit taking.

Outerwall (OUTR), known for their Redbox video kiosks, blew away estimates of $1.67 with earnings of $2.87 thanks to a price hike on DVD rentals. Revenue of $608.8 million surpassed estimates for $594 million. The company raised full year estimates to a range of $7.49 to $8.49 and revenue from $2.29-$2.42 billion. The company closed 1,720 underperforming Redbox kiosks in Q1 and plans to close 1,000 to 1,900 more in the near future. Currently they have 41,960 kiosks with average revenue per rental of $3, up +42 cents from the year ago period.

Universal Display (OLED) reported earnings of 3 cents on revenue of $31.2 million and reaffirmed their guidance for the current quarter. That was good enough for a 10% spike to a new high. The company makes LED lights.

Stamps.com (STMP) reported earnings of 72 cents that beat estimates by 12 cents. Revenue of $44.1 million rose +32%. Paid subscribers reached a record high. They raised full year guidance by 5 cents to a range of $2.55-$2.95 and revenue estimates by $5 million to $165-$185 million.

Other major gainers on Friday were:

CF - CF Industries +11%
SYT - Syngenta +11%
MMI - Marcus & Millichap +16%
NLS - Nautilus +5.5%
AZO - Autozone +9%
IMPV - Imperva +9%
PUMA - Puma Bio +9%
AGIO - Agios Pharma +10%

Broadridge Financial (BR) guided for full year earnings with a midpoint of $2.47. Analysts were expecting $2.51. Shares declined -6%.

Trex Company (TREX) reported earnigns of 55 cents that beat estimates for 52 cents. Revenue also beat. Trex guided for Q2 revenues of $136 million and analysts were expecting $139.1 million. Shares still rallied +4% on the news.

Horizon Pharma (HZNP) reported earnings of 21 cents that beat estimates by 2 cents. Revenue of $113.1 million also beat estimates for $105.2 million. They raised full year revenue guidance to a range of $590-$610 million, up from $450-$475 million. Analysts were expecting $545 million. You would think those metrics would produce a spike in the shares but they also reported an 86% hike in operating expenses. Shares fell 6% on the news.

The earnings calendar for next week is pretty bare with only six headliners as the earnings season comes to a close. GoDaddy on Tuesday, Cisco and Jack in the Box on Wednesday will be the crowd favorites.

This is also retail week with Kohl's, Nordstrom, Dillards and JC Penny on Thursday.

Crude oil surged to the high for the year at $62.50 on Wednesday and then pulled back to use prior resistance at $58 as support. The sharp drop on Thursday caused heavy losses in the energy equities. You would have thought oil had crashed back to $50.

After 16 consecutive weeks of inventory gains the string was broken with a -3.9 million barrel decline in Wednesday's inventory report. This powered the surge higher but profit takers were ready to strike. Refinery utilization rose from 91.3% to 93.0% and the highest level of the year as we near the start of driving season.

Late Friday Baker Hughes reported a decline in active rigs of -11 and the smallest number since the week of December 5th. As you can see in the highlighted Rig Change line the pace of the declines is slowing. Last week's total active rigs of 894 is -961 rigs off the high and a -58.6% decline. We are only 28 rigs above the financial crisis lows at 866.


If the market does not pick a direction pretty soon I am going to start looking for a high bridge to jump from. These alternating 2-3 day periods of triple digit gains and losses since early December are making it very difficult to determine market direction and pick stocks. After two days of strong declines to a new five-week low the Dow and S&P recovered all those losses and returned to the highs in only about 10 minutes of trading on Friday morning. Investors can't profit from that kind of movement and it has been constant for more weeks than I care to remember.

The Dow, S&P and Nasdaq all returned to stop at or near major resistance. Since there was no follow through after the first 15 minutes of trading on Friday the obvious deduction would be that the market should decline on Monday. It was clearly a short squeeze because of negative expectations for the payroll report. However, the market exists to make the most fools possible out of any particular situation.

You can look at the S&P as a pending breakout or a pending breakdown depending on your market bias. The S&P closed at 2016 and less than 2 points from a new historic high. How can you be bearish with that fact? To start with it has traded in that range six days out of the last ten. The S&P could be slowly wearing away at that overhead resistance and a breakout could be imminent. However, the only really positive data point we have seen in the last month has been the payroll report. The market does not run on jobs alone.

Also a positive is the better than expected earnings. More than 68% of the S&P have now beaten on earnings but only 52% beat on revenue. Earnings for the quarter are now expected to grow by +2% compared to estimates for -3% at the beginning of the cycle. Bulls will point to that as a reason why the market should move higher.

The S&P is at its record high despite outflows from U.S. equity funds of -$35.8 billion and the biggest monthly move since October 2008 according to TrimTabs.com. Merrill Lynch said investors have withdrawn $99 billion year to date. Last week was the largest weekly withdrawal at -$17.2 billion. The market will have a tough time moving higher if the outflows continue.

Volume on up days continues to be anemic. Monday's gain came on the lowest volume of the week at 5.7 billion shares and Friday's monster short squeeze came on the second lowest volume of the week at 6.5 billion shares. The three declining days in the middle of the week came on a daily average of 7.1 billion shares.

They say a bull market climbs a wall of worry. This one is doing that on declining volume, negative fund flows and weak economics while Janet Yellen is warning the market is overvalued. This is a clear case of "don't fight the Feds." Yes, Feds is plural. With the ECB just getting started with its QE program, Japan throwing mountains of cash at the equity market and China ready to add to its $1.1 trillion in stimulus, the market is awash in liquidity. That is the only answer to why the market continues to ignore the headlines and power ahead. The volatility is increasing because investors are nervous. They don't want to miss out on the gains but they can see the signs pointing to an eventual correction. That means this is scared money ready to jump out at the first sign of trouble.

On the positive side new highs attract money from the sidelines faster than flies to a picnic. Every time the market flirts with a new high the buyers come running only to see the rally fizzle as institutions sell into the spikes. When is this going to end?

Eventually the S&P is either going to breakout or breakdown and every day that passes means we are one day closer to that event. The number of analysts calling for a correction increases every day but as I have pointed out before that tends to be a contrarian indicator. If everyone is expecting a crash the opposite normally happens.

So what do we do this week? The S&P has the perfect setup for trading. If it breaks through the 2120 level on decent volume I would jump on for the ride. If it opens down on Monday I would wait patiently to see if support at 2070-2080 fails or another buy the dip rebound begins. The 100-day average currently at 2071 has been decent support since February. If that average breaks it would be a sell signal that could see the S&P decline to the 2000 level.

This is May. Be patient and wait for the market to pick a direction.

The Dow punched through resistance at 18,100 but came to a dead stop at 18,200. The historic high close at 18,288 is still about 100 points away. In theory the Dow "should" fail at this 18,200 level since there was no follow through after the open on Friday. As Einstein is quoted as saying, "In theory, theory and practice are the same. In practice, they are not."

All 30 Dow stocks were positive on Friday. That rarely happens because there is always a headline or two to drag a couple of stocks lower. Gains can be deceiving. Quite a few of the Dow stocks had small candles with big wicks indicating the opening spike and then a quick decline back to the opening level. Note the Friday candle on the Walmart chart. Would you rush out and buy Walmart because of this chart? Probably not. Based on this chart would you expect a continued rally on Monday?

Boeing was the leader on the Dow and it was clearly short covering after several weeks of declines. Boeing also said on Thursday that Kuwait is about to place a $3 billion order for 28 additional F/A-18 fighter jets that will keep the assembly line open for at least 2 more years past the expected 2017 closure. The spike was obvious short covering after two weeks of declines. Would you buy Boeing from this chart?

The Dow has been at the 18,200 level five other times over the last two months and each time the resistance held. Is this time different? If so, why? What has changed? Nobody today knows if resistance will hold on the sixth attempt. Friday's close was +460 points above Wednesday's lows. That alone suggests the index is stretched and profits could be taken on Monday that puts the Dow back into the congestion from the last month. The 100-day average has been the key level to watch over the last five weeks. So far the Dow has not closed below it.

We don't talk about the Dow Jones Composite Index ($DJA) much but the chart is worth mentioning this weekend. The DJA retested support for all of 2015 at just above 6250 on Wednesday. This support level has been tested many times and has held each time. However, there is a strong pattern of lower highs that suggest the long term view is negative. That could change at any time but we need to pay attention when a broader index of about 3,250 stocks is giving a signal.

Likewise the NYSE Composite ($NYA) is informational when trying to determine market direction. In this case the NYSE rebounded to resistance at 11,200 and came to the same dead stop as the other indexes. However, the NYSE is in an uptrend with the historic high close of 11,203 only 6 points above Friday's close. The NYSE is telling us the exact opposite of the Dow Jones Composite.

The Nasdaq rebounded to stop dead on resistance at 5002 and there was no follow through after the opening candle that halted at 5005. This is the textbook definition of a short squeeze. The index could power higher as long as the biotechs cooperate but most of them were simply rebounding from short squeezes of their own. The sector had been devastated over the last two weeks and there were a few brave souls holding short positions. Looking at the gainers list below do you expect most of those stocks to continue higher? STMP, BLUE and OUTR were all earnings events that won't be replicated on Monday.

I would continue to be cautious on the Nasdaq until it can move convincingly over 5000 with some decent volume. Support is now 4900 and 4850.

The Russell 2000 has the most convincing short squeeze candle of the bunch. It is almost invisible with the open at 1234.82 and the close at 1234.78. Yes, 4 cents difference and clearly no follow through from the opening spike. The Russell chart could go either way but the candlestick on Friday suggests possible weakness in the coming days.

As Johnny Carson used to say, "We have come to a fork in the road." The earnings cycle is ending, rates are rising, economics are weak, the dollar is strong, $99 billion has left U.S. equity funds in 2015 and volume is low suggesting a lack of conviction. Investors hear every day how we are due for a correction and the market is overvalued. However, money leaving the treasury market has to go somewhere. We are into the sell in May period and last week's volatility may have had something to do with that trend. Historically the first two weeks are volatile so that suggests next week may be volatile as well.

Investors at the fork in the road will have to decide if they want to take the path that buys equities and hopes for a summer rally despite the weak fundamentals or will the take the path towards a more conservative summer and wait until some more green shoots form.

The problem with waiting is that once it is apparent the earnings and economy are recovering it will be too late. The market is an extremely efficient discounting mechanism and is normally optimistic even in the face of economic weakness. With the S&P, NYSE Composite and possibly the Dow threatening to breakout that may mean that investors have overdosed on the Fed's "moderate growth" Kool-Aid and they are investing for the future.

I suggest we take the path of caution. There is no need to rush into the market like our money is going to self destruct if we don't buy something. With the summer doldrums ahead anything is possibly. We will lose nothing by waiting a few days to make our next trading decision and let the market pick a direction first.

If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

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Random Thoughts

Japanese debt rose to a new record at 1,053,357,200,000,000 yen. The interest on this debt if 2.275%. The vast majority of it is owned by Japanese citizens. The odds of Japan paying it back are near zero. The only way they will be able to pay it back is if they inflate it away with rampant inflation that makes the yen even cheaper and pushes the citizen investors into financial ruin. Japan remains a bug in search of a windshield.

Investor sentiment took an interesting turn last week. The percentage of traders neutral on the market remained over 45% for the fourth consecutive week and a new 26 year record. However, the bullish sentiment took a dive, down -3.8%, and bearish sentiment rose sharply by +4.9% suggesting sentiment is turning against the market.

If Yellen hikes rates this year she will break a trend that has been in place since 1948. Since that year the Fed has raised rates 118 times and the nominal GDP averaged 8.6% when those hikes started. Only in Q3-1958 and Q3-1982 did the Fed hike rates when GDP growth was under 4.5%.

Since Harry Truman was in the White House, nominal GDP was 4.5% or greater and over 5.5% 112 times when rates were hiked.

Since 2010 nominal GDP growth has averaged 3.9% and is now falling. Analysts believe if the Fed hikes rates soon they may come to regret it. Even Minneapolis Fed President Narayana Kocherlakota is calling a rate hike in 2015 "inappropriate."

Morgan Stanley is warning of a "triple taper tantrum" in 2016. Morgan Stanley said the Fed, ECB and Bank of Japan might all taper their super-loose monetary policies next year if growth and inflation across all three regions picks up. The broker warned that all three entities were at different stages of post-crisis management BUT conditions have changed considerably since the first of the year. In early January deflation was the big worry with oil prices and commodity prices plunging. Those have all reversed and signs of inflation are starting to appear. If all three entities began removing monetary stimulus the global markets could not react well. Triple Taper Tantrum

The bond market is giving investors a bad case of nerves. In the past 15 years a rise in yields of this size and speed has only happened twice before. That was in 1999 and late 2011. HSBC said the spike in yields was a classic pain trade. "Negative rates in the eurozone forced money up the local rate curves and down the credit spectrum while encouraging a flow into higher yielding regions like the USA." History of Bond Market Corrections.

The Social Security Administration (SSA) projects that its trust funds will be depleted by 2033. However, new studies from Harvard and Dartmouth researchers found that the SSA has been overstating the financial health of the trust funds since 2000. Trust funds are expected to grow until 2019 and costs will exceed income beginning in 2020. Social Security Shortfall

Nuclear weapons in a week? Saudi Arabia said "We prefer a region without nuclear weapons. But if Iran does it, nothing can prevent us from doing it too, not even the international community," according to Abdullah al Askar, a member and former chairman of the foreign affairs committee of Saudi's advisory legislature. "Our leaders will never allow Iran to have a nuclear weapon while we don't. If Iran declares a nuclear weapon, we can't afford to wait for 30 years or more for our own - we should be able to declare ours within a week." Saudi Arabia Considering Nuclear Weapons

The U.S. military has ordered security at bases around the USA to the highest level in 4 years. The threat level was raised to threat level Bravo and 2 levels below maximum. The security at recruiting stations, National Guard posts and military bases and camps in the continental US, Alaska, and U.S. territories will be heightened. A U.S. official speaking on condition of anonymity said the government had some specific information that people might be inspired by the attack in Garland. The last time security was raised at bases all across the U.S. was Sept 11, 2011.

An ISIS account on the web claims they have 71 trained fighters in the U.S. across 15 states and that 23 of them are preparing attacks. A FBI official said on Saturday that they were tracking thousands of people sympathetic to ISIS but the vast majority would never take violent action. It is that minority group that could cause a lot of trouble. Pentagon Raises Base Security

North Korea announced it had carried out a successful test of a submarine launched ballistic missile. Kim Jong Un praised the test as a "miraculous achievement." "This missile is a time bomb which will go off on the backs of our hostile enemies at any time." The launch of the missile is a clear violation of multiple UN Security Council resolutions. Military officials warned that nuclear armed submarine launched ballistic missiles would be difficult to defend against. North Korea has been working on nuclear weapons and missile launch systems for more than two decades despite being the most sanctioned country on the planet. North Korean Missile Test

Last week Chinese experts said North Korea may already have 20 nuclear warheads and enough fissile material to double that number by next year and have up to 100 by 2020. North Korean Nuclear Weapons


Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"I love how he [Warren Buffett] criticizes hedge funds, yet he had the first hedge fund. He criticizes activists, yet he was the first activist. He criticizes financial services companies, yet he loves to invest in them. He thinks that we should all pay taxes, yet he avoids them himself."

Dan Loeb


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New Plays

Financial Services & Technology

by James Brown

Click here to email James Brown


Altisource Portfolio Solutions - ASPS - close: 29.96 chg: +0.04

Stop Loss: 27.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on May -- at $---.--
Listed on May 09, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 777 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
Shares of ASPS have been crushed from its highs near $170 a share back in late 2013 to almost $12 a share in March this year. That is thanks to the incestuous relationship that ASPS has with a handful of companies all founded by one man - William Erbey. One such company, Ocwen (OCN), is in danger of going out of business as authorities investigate the company on charges of misconduct. There is a risk to ASPS since a large chunk of ASPS revenues come from a relationship it has with OCN. It's not a surprise to see the slide in ASPS shares. However, the sell-off appears to be overdone and the stock may have found a bottom.

ASPS is in the services sector. According to the company, "Altisource Portfolio Solutions S.A. is a premier marketplace and transaction solutions provider for the real estate, mortgage and consumer debt industries offering both distribution and content. Altisource leverages proprietary business process, vendor and electronic payment management software and behavioral science based analytics to improve outcomes for marketplace participants. Altisource has been named to Fortune’s fastest growing global companies two years in a row."

Their most recent earnings report was April 23rd. Earnings soared +72% from a year ago to $0.56 a share even as revenues fell -1.0% to $207.8 million, which was significantly below estimates.

One of the most alluring features for traders to be short-term bullish on ASPS is the opportunity for a short squeeze. The most recent data listed short interest at 41% of the very small 9.6 million share float. That's very high and provides plenty of fuel for a short-covering fueled rally. Of course there is a risk. If OCN loses its legal battle with authorities it could go out of business and that will crush ASPS but that seems unlikely in the short-term. Meanwhile the broader market is pushing higher and poised to breakout, which could help fuel more short covering in ASPS.

The stock is pushing against resistance near $30-31. We are suggesting a trigger to launch small bullish positions at $31.10. I'm suggesting small positions to limit risk because ASPS can be volatile.

Trigger @ $31.10 *small positions to limit risk*

- Suggested Positions -

Buy ASPS stock @ $31.10

- (or for more adventurous traders, try this option) -

Buy the JUN $30 CALL (ASPS150619C30) current ask $2.65
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

Option Format: symbol-year-month-day-call-strike

Daily Chart:

Weekly Chart:

Synchronoss Technologies - SNCR - close: 45.75 change: +0.74

Stop Loss: 43.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on May -- at $---.--
Listed on May 09, 2015
Time Frame: Exit prior to June option expiration
Average Daily Volume = 527 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
This trade is not for the faint of heart. Shares of SNCR have produced some rollercoaster like moves in the last six months. We want to use that volatility to our advantage.

SNCR is part of the technology sector. According to the company, "Synchronoss Technologies, Inc. (SNCR), is the mobile innovation leader that provides cloud solutions and software-based activation for connected devices across the globe. The company's proven and scalable technology solutions allow customers to connect, synchronize and activate connected devices and services that empower enterprises and consumers to live in a connected world."

Earnings and revenue growth has been impressive. SNCR has beaten Wall Street's earnings estimate the last four quarters in a row. Meanwhile sales have been growing at a strong double-digit pace. Looking at the last four quarters SNCR reported sales growth of +23.6%, +39.6%, +34.7%, and most recently +34.9%.

SNCR's 2015 Q1 report was announced on April 29th. Earnings rose +26% from a year ago. SNCR's Founder and CEO Stephen Waldis commented on his company's results, "Synchronoss delivered a strong start to 2015, highlighted by first quarter results that were at or above the high end of expectations. During the quarter, both sides of our business contributed to the strong performance, particularly our Cloud Services, which grew by 63% year-over-year. Mobile Operators around the world are capitalizing on the success of how personal cloud can drive important benefits to their valuable subscribers. We are pleased with our successful formula for helping our customers gain adoption and success with our personal cloud platform."

The stock was crushed from $52 to $44 (-15%) during the market's most recent swoon in the last several days of April. The sell-off was also a reaction to SNCR's earnings results. It looks like the sell-off was overdone and investors have started buying the stock near technical support at its rising 200-dma.

Tonight we are suggesting a trigger to launch small bullish positions at $46.10. More conservative traders may want to wait for a rally past the 10-dma instead (above 46.33). We'll try and limit our risk with a stop at $43.85. Keep in mind this is an aggressive play due to SNCR's volatility.

Trigger @ $46.10 *small positions to limit risk*

- Suggested Positions -

Buy SNCR stock @ $46.10

- (or for more adventurous traders, try this option) -

Buy the JUN $50 CALL (SNCR150619C50) current ask $0.75
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

Option Format: symbol-year-month-day-call-strike

Daily Chart:

In Play Updates and Reviews

Stocks Rally On Jobs Report

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market rallied sharply on the April jobs report. While March was revised lower the April number came in around expectations. This eased fears regarding a slowdown in the U.S. economy.

Current Portfolio:

BULLISH Play Updates

Allegheny Technologies - ATI - close: 35.69 change: +0.89

Stop Loss: 33.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on May -- at $---.--
Listed on May 05, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: Yes, see below

05/09/15: The market's big rally on Friday gave ATI a nice boost. Shares gapped open higher and ended the day with a +2.5% gain. ATI is poised to breakout past resistance near $36.00 if this rally continues.

Our suggested entry point for bullish positions is $36.05.

Trade Description: May 5, 2015:
It looks like shares of ATI have put in a bottom.

The company is in the industrial goods sector. According to ATI, "Allegheny Technologies Incorporated is one of the largest and most diversified specialty materials and components producers in the world with revenues of approximately $4.4 billion for the last twelve months. ATI has approximately 9,600 full-time employees world-wide who use innovative technologies to offer global markets a wide range of specialty materials solutions. Our major markets are aerospace and defense, oil and gas/chemical process industry, electrical energy, medical, automotive, food equipment and appliance, and construction and mining."

ATI's most recent earnings report was April 21st. Management said their Q1 2015 earnings were $0.09 a share. Depending on who you polled ATI's nine cent profit was either one cent above or one cent below analysts' estimates. Whatever the case their $0.09 profit was a big improvement from the $0.19 loss a year ago. Revenues for Q1 2015 were up +14% from a year ago to $1.13 billion, which was above analysts estimates.

ATI saw a big improvement from their Q4 with sales up +7% sequentially. This helped drive a +25% improvement in operating profits.

ATI President and CEO Rich Harshman commented on their results, "Aerospace market sales increased 14% in the first quarter 2015 compared to the fourth quarter 2014. We saw double-digit demand growth from both jet engine and airframe customers of 14% and 22%, respectively. First quarter aerospace demand was led by organic growth of our mill products. Sales of our nickel-based alloys and specialty alloys increased 15% and sales of our titanium alloys grew 16% with a good mix of value-added mill products. We expect sales growth of our precision forgings, castings, and components to begin later this year supported by the build ramp of next-generation jet engines."

Looking ahead ATI expects demand from the oil and gas market to remain soft. However, demand from the airframe and jet engine makers should be strong throughout 2015.

The stock broke out from a consolidation pattern on its better than expected Q1 earnings. This helped generate a buy signal on the point & figure chart, which is currently forecasting at $47.00 target. Shares of ATI spent a few days struggling with technical resistance at its 200-dma but they have broken out past this level as well. The past seven months looks like a massive bottoming process for the stock. Now shares are on the verge of breaking out past key resistance in the $35-36 area. We want to use a trigger at $36.05 to launch bullish positions.

FYI: ATI's next dividend ($0.18) is this month. The ex-dividend date is May 22nd. The shareholder record date is May 27th.

Trigger @ $36.05

- Suggested Positions -

Buy ATI stock @ $36.05

- (or for more adventurous traders, try this option) -

Buy the JUL $37.50 CALL (ATI150717C37.50)

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

Option Format: symbol-year-month-day-call-strike


Total System Services, Inc. - TSS - close: 41.11 change: +0.45

Stop Loss: 39.40
Target(s): To Be Determined
Current Gain/Loss: +0.0%
Entry on May 08 at $41.02
Listed on May 07, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 843 thousand
New Positions: see below

05/09/15: TSS also got a big boost from Friday's market rally. Shares gapped open higher at $41.02, which immediately triggered our play since the suggested entry point was $40.85. TSS rallied to $41.47 intraday (a +2% move) before paring its gains and settling with a +1.1% gain.

I would not be surprised to see TSS fill the gap from Friday morning. That means nimble traders could look for a dip near $40.80 as an alternative entry point to launch bullish positions.

Trade Description: May 8, 2015:
Consistently beating Wall Street's earnings estimates has driven shares of TSS to new all-time highs. The company is in the financial sector. The XLF financial ETF is down -1.2% for the year. TSS is up +19% for the year.

According to the company, "At TSYS® (TSS), we believe payments should revolve around people, not the other way around. We call this belief People-Centered Payments®. By putting people at the center of every decision we make, TSYS supports financial institutions, businesses and governments in more than 80 countries. Through NetSpend®, A TSYS Company, we empower consumers with the convenience, security, and freedom to be self-banked. TSYS offers issuer services and merchant payment acceptance for credit, debit, prepaid, healthcare and business solutions. TSYS' headquarters are located in Columbus, Ga., U.S.A., with local offices spread across the Americas, EMEA and Asia-Pacific."

This company has beaten analysts' estimates on both the top and bottom line the last four quarters in a row. Their most recent earnings report was April 28th. Earnings per share soared +41% to $0.54. That was eight cents above estimates. Revenues were up +11.7% to $662.2 million.

A few months ago (January 2015) TSS announced a new 20 million share stock buyback program to replace their old one. Last quarter they repurchased 1.45 million shares. When you include the company's dividend they paid out 73% of their available free cash flow to shareholders.

TSS' President and CEO, Mr. M. Troy Woods, commented on their recent results saying, "As a result of the great start to the year, we are revising our adjusted EPS guidance to grow between 12-14% from the previous range of 11-13%."

Shares of TSS surged to new highs on its earnings report. Since then traders have been buying the dips and the stock set a record closing high today. Tonight we're suggesting a trigger to launch bullish positions at $40.85.

FYI: TSS will hold an analyst day on May 20th.

- Suggested Positions -

Long TSS stock @ $41.02

- (or for more adventurous traders, try this option) -

Long AUG $40 CALL (TSS150821C40) entry $2.50

05/08/15 triggered on gap open at $41.02, suggested entry was $40.85
Option Format: symbol-year-month-day-call-strike


BEARISH Play Updates

Emerge Energy Services - EMES - close: 36.54 change: +1.24

Stop Loss: 41.25
Target(s): To Be Determined
Current Gain/Loss: +2.9%
Entry on May 07 at $37.65
Listed on May 06, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 413 thousand
New Positions: see below

05/09/15: Most of the market was in rally mode on Friday morning. Shares of EMES actually sank to new lows. The stock managed a bounce midday and shares eventually ended the session with a pretty hefty rebound (+3.5%). EMES recovered a little less than half of Thursday's sell-off.

EMES was arguably short-term oversold so I wouldn't be surprised to see a bounce into the $38-40 zone but a failure beneath $40 could be used as a new bearish entry point.

Trade Description: May 6, 2015:
The bubble in fracking sand and proppant stocks popped in 2014. The top in the fracking sand producers was just a couple of months after crude oil peaked last year. The impact of crude oil's decline and the industry's reaction to the oversupply-pricing issue will still be felt for months to come. Just as the oil and gas producers are cutting expenses, mothballing rigs, and delaying new projects, the proppant companies are forced to do the same. EMES recently announced they were canceling plans to build a new silica sand processing facility.

EMES is in the basic materials sector. They're part of the oil services industry. According to the company, "Emerge Energy Services LP (EMES) is a growth-oriented limited partnership engaged in the businesses of mining, producing, and distributing silica sand, a key input for the hydraulic fracturing of oil and natural gas wells. Emerge Energy also processes transmix, distributes refined motor fuels, operates bulk motor fuel storage terminals, and provides complementary fuel services. Emerge Energy operates its sand segment through its subsidiary Superior Silica Sands LLC and its fuel segment through its subsidiaries Direct Fuels LLC and Allied Energy Company LLC."

The earnings picture has been damaged by a very rough pricing environment for EMES' sand. Their Q4 2014 earnings, announced on March 2nd, were $1.01 per share. That was 12 cents below expectations. Q4 revenues were down -1.4% to $242.6 million compared to analysts' estimates of $301 million. That's a huge revenue miss.

The weakness continued in the first quarter. Wall Street was expecting EMES to report Q1 2015 earnings of $0.83 a share on revenues of $264 million. The company only delivered $0.39 per share with revenues down -25.5% to $204 million. The rest of 2015 is expected to remain challenging.

The stock was hammered again on April 24th when EMES management reduced their dividend from $1.41 per share down to $1.00.

The $40.00 level has been support and now shares are breaking down. The most recent data listed short interest at 13% of the very small 14.6 million share float. This time the shorts are probably right but the high short interest could make this a volatile trade. EMES' recent attempt at a bounce has been failing. We want to catch the next leg lower. Tonight we are suggesting a trigger to launch bearish positions at $37.65.

- Suggested Positions -

Short EMES stock @ $37.65

- (or for more adventurous traders, try this option) -

Long JUN $35 PUT (EMES150619P35) entry $2.35

05/07/15 triggered @ 37.65
Option Format: symbol-year-month-day-call-strike