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Buy or Sell This Week?

|Includes: Alliance Data Systems Corporation (ADS), TSS
Buy or Sell This Week?

I don’t know whether to buy long or sell short this week. I think the market is almost ready for a correction or even a big sell off for a variety of factors, but I’m waiting for more low-risk high-reward short sell opportunities to present themselves in force before I start saying the bear market rally is over with.

Buy Reason Number 1

Buying long at this point seems like it’s a high-risk low-reward proposition right now, but then again, there still might be some momentum in this market so as long as I have a stop-loss ready if the market does decide to selloff and or tank big. Buy long Monday, stop and reverse later in the week might be a good call also if the market tries to move back up then reverses again to the downside later. Tough call right now.

Sell Reason Number 1: Fibonacci 61.8% Retracement

First, the DOW and S&P500 are getting close to some major resistance price levels right now. I’m talking about the 61.8% Fibonacci Retracement level from the October 2008 high and then big market selloff to the March 2009 lows. The Fibonacci 61.8% level on the DOW is 11,241.70 and on the S&P500 its 1,226.24 which these markets are very close to right now. The Nasdaq is over its 61.8% Fibonacci retracement which is not unusual for that index. The RSI on the Dow and S&P500 currently is diverging from the price which is a red flag warning sign that we could see a correction and or reversal to the downside in these markets anytime now.

Sell Reason Number 2: Goldman Sachs & Sovereign Debt

Some investors traders are calling the Goldman Sachs problem a short lived no big deal buying opportunity, while others are calling it a deal breaker for more upside in stocks for awhile. I see it as a setup for bigger problems to come. For me it’s more about events like Goldman Sachs and the Sovereign Debt problems that add up, pile up, over time, while the market continues on and on up and up while, then finally figures out its time to sell and the stampede for the exit comes. We are still waiting for that to happen. Its takes time for a spring to get wound up so tight that it can’t go anymore, then it unwinds hard and fast.

Jimmy Rogers Is Looking For A Correction

Billionaire investor Jim Rogers said that "Markets are overdue for a correction," Rogers told CNBC in a telephone interview Saturday. "Any market that goes up this much, this fast, this steadily without correction - it's not normal. When that sort of things happens, the market could be setting itself up for a 15 - 20% correction."

I’m inclined to agree with Rogers, but the big confirmation sell signal has not hit my stock screens yet, but I’m watching and waiting for it to happen to pull the trigger on the all sell buttons. Until then, I’ve got a new buy long position momentum play below that might work out below if the buying opportunists come in and support the market.

My Stock Pick This Week Is A Buy Long Position On Alliance Data Systems

First, Alliance Data is having their Q1 2010 earnings conference call this Wednesday April 21 at 5PM Eastern time. Analysts are looking for Alliance to report earnings of $1.37 on sales of $529 million. For entire year, analysts are expecting ADS to post Earnings Per Share of $5.98. A year ago Alliance reported EPS of $0.87 on sales of $480 million. In the previous quarter, the company reported EPS of $1.67, topping consensus estimates of $1.62.

Alliance Data stock price has risen about 25% since its February 04 year to date low. They have one of the highest return on equity ratios in the financial sector currently. The return on equity for Alliance is currently 43.1%. Jim Cramer put a sell on ADS on March 19th at about 64 a share, and Alliances stock price then went sideways to up, so maybe it still some up from here.

ADS had a higher net charge-off in the first quarter for the private label credit cards its issues, but the recent figures on the performance of their credit card loans show that while losses remain at high levels, the pace of increase is manageable for most card issuers. Another good thing for Alliance is that their delinquency rates are slowing at least for the time being.

Alliance Data is one of the top 5 companies in the data processing outsourcing services industry. Fundamentally Alliance Data’s price to book ratio is about 13 times based on a current price of $66.87 and its book value per share is $5.23 which is at the high range for its industry group. Technically Alliance Data Systems is currently above its 50-day moving average of $60.31 and above its 200-day moving average of $58.59. If these moving averages hold, Alliance may continue is upward momentum. Again, in case it doesn’t stop-loss always, and with the market the way it is right now, stop and reverse could be profitable too.

Buy Long Alliance Data Systems – Ticker ADS

Buy Entry: 65.15 to 68.49

Stop-Loss: 64.14

Take Profit Areas: 68.69 to 68.93, 72.02 to 72.27, 74.37 to 74.62

Alliance Data Systems Company Profile

Alliance Data Systems Corporation, together with its subsidiaries, provides data-driven and transaction-based marketing and customer loyalty solutions primarily in the United States and Canada. The company operates through four segments: Loyalty Services, Epsilon Marketing Services, Private Label Services, and Private Label Credit. The Loyalty Services segment includes AIR MILES Reward Program. The AIR MILES Reward Program enables consumers to earn AIR MILES reward miles as they shop within a range of retailers and other sponsors participating in the AIR MILES Reward Program. These AIR MILES reward miles could be redeemed by its collectors for travel or other awards. The Epsilon Marketing Services segment provides integrated direct marketing solutions that combine database marketing technology and analytics with a range of direct marketing services, including email marketing campaigns. This segment's products and services include marketing database services, analytical services, strategic consulting and creative services, proprietary data services, and digital communications. The Private Label Services segment encompasses card processing, billing and payment processing, and customer care and collections services for private label retailers. The Private Label Credit segment provides private label retail credit card receivables financing; and securitization of the credit card receivables that it underwrites from its private label retail card programs. The company primarily serves financial services, specialty retail, grocery and drugstore chains, petroleum retail, technology, hospitality and travel, media, and pharmaceuticals markets. Alliance Data Systems Corporation was founded in 1996 and is headquartered in Dallas, Texas.

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Disclosure: No Positions