us stock market, trade stock

- Market slides into the weekend status quo as no one wants to commit.
- July retail sales solid, raise fear of FOMC stepping back in.
- Dog days of summer, but expiration week could bring some sharp swings once more.
- A week where the market and leadership has to put something together upside.

Here's a trade from "The Daily" and insights into our trading strategy:

Chart by StockCharts.com

Company Profile
When the market weakens you cannot afford to ignore it. In our investing mindset you have to look at what the market is doing and then take what it gives. Take what the market gives. Approach it unemotionally. Approach it as a means to an end. Thus when we see signs of a weakening economy we know that home furnishings, builders and the like are going to suffer and we look around for stocks we can make money on as they fall.

SCSS makes beds. Everyone needs a bed, but when the economy softens buyers are less likely to step out and try something different such as an air bed. SCSS formed a broad top in April and May and broke below the 50 day EMA. It started down from there, riding lower on the 50 day EMA as it sold, coming up to that level and then falling. It broke a key level in July, the 200 day SMA. It tested it in late July and started to fade again, not even able to make the 50 day on this bounce.

We saw that and put the play on the report. We waited for the next break lower, and when it started down on 8-1-06 that is when we moved in. The stock was right at $20, and when it started lower we bought some September $20 strike puts for $1.40. We were not going for the kill, just wanted to ride the next leg lower. As long as it rode below the 10 day EMA on the move we would let it work for us. It continued its stair-step lower that week with something of a pause before really tanking last week with a sharp drop Tuesday, Wednesday and Thursday. That took SCSS to our target just below $18. We sold the options for $2.45, banking a nice 75% gain in 8 sessions.

This was just one of several downside plays the past two weeks that put some nice coin in our pockets. PANL returned 91%. XPRSA returned 36% in a day and is ready to give us more. It pays to watch what the market is telling you about direction and then to move with that direction as opposed to fighting it. Take what the market gives. That is our trademark.

Learn more about "The Daily" with Stock Picks! - Issued 5 Times Per Week

Playing stock splits can be very profitable, but it takes know-how. Our stock split service focuses on three main types of plays:

1) pre-announcement (where we forecast an upcoming split prior to the company making the announcement); 2) pre-split (these plays are made in the days leading up to the actual split day); and 3) post-split plays (plays made after the actual stock split where the stock is showing continued or renewed strength).

We play pre-split plays as short-term plays. We get in when the technical indicators show us things look right, grab as much as we can, and get out, always being conscious of resistance and support. These stocks are highly volatile at this time, and can turn on you quickly. Don't let good profits disappear. Watch for turns, especially when a stock trades in a wide range and finishes off its high. That is a sign these stocks often give you that they are running out of steam. We usually get out and ask questions later. We can always get back in. We like to play in the money calls, preferably two strike prices in the money as this usually gives us a greater delta (the percent an option will mover versus the stock's movement). We prefer deltas of 75 or better. This means if the stock moves 1 point, the option should move three-fourths of that point. That means up or down.

Remember, wait to see the stock start to move up. Don't just blindly make a play and don't try to guess tops and bottoms. We can look at indicators to give us a clue as to what will happen, but we need the stock to confirm it for us.

Here's a pre-split play to watch and our current analysis.

Chart by StockCharts.com

Company Profile
STATUS: Breakout test. CXW surged on its strong earnings and split announcement, rallying well to start the month. It hit 63.76 on Monday's peak and that set off a week of testing on low volume, coming back Friday to tap the 10 day EMA (59.56) and rebound to close flat. Excellent earnings, solid momentum, excellent test. Ready to move in and catch some pre-split gain as it rebounds off of this first test of its breakout. Looks ready for another jailbreak.
Volume: 264.2K Avg Volume: 403.24K
BUY POINT: $61.48 Volume=410K Target=$67.50 Stop=$59.31
POSITION: CXW LL - Dec. $60c (60 delta) &/or Stock

Learn more about our Stock Split Report and how we have made gains of 321% with our powerful stock split plays!
Details Here.