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- Bullish bias holds to the end as stocks drift higher on low volume.
- Economic data paints the same picture: expansion losing steam.
- Bond yields tank as 'new' Fed study reveals inversions lead to recessions.
- The return of money supply to monetary policy: why Bernanke is far superior to Greenspan.
- Market ready to start the mean season with a lead in from a late summer rally.

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

Chart by StockCharts.com

Company Profile
After using the dip after the mid-August run higher, the second upside leg in the late summer rally, to score a nice downside gain on RS, we were looking for some upside positions to take advantage of the third leg higher in the rally. We already had some positions (stock and options) in NVDA, a market leader in this rally, and it made a nice pullback, during that test of the second leg, setting up a new buy point for the next run higher. After a week of pulling back to test that strong mid-August move, NVDA came back and tapped at the 10 day EMA on 8-23-06 intraday and rebounded. We put the new play on the report that session, looking for the rebound to start the next move back up.

NVDA tapped the 10 day EMA again on 8-24 and bounced. We entered the play with some more stock positions at $26.58 and some December $25 strike call options at $4.00 per option. NVDA showed another doji on the candlestick chart the next session, but then gapped higher on 8-28 for a 91 cent gain. Then it added another $1.24 the next session, and $0.59 the next. We were expecting a strong move in the last week of summer to give us another nice gain we could take ahead of the Labor Day weekend and the start of fall. We took some gain off the table that day, selling some stock for $29.15 and some options for $5.80. We banked some 9.5% stock gain and some 45% option gain on the move. We also took some gain on our prior positions taken at $25.45 and $3.40 (the same strike and month options), putting another 13.75% and 70% gain in the bank.

We often average up into a market leading winner, using tests after the breakout to add more positions. This way we build into a winner, focusing assets on a market leading stock. NVDA finished the week with a pullback Thursday and Friday, heading back toward the 10 day EMA. This is NVDA's second test of the 10 day EMA after the breakout, and a strong stock will make 3 to 5 such bounces before needing a deeper test. Next week is the start of a new season for stocks, however, so we will have to see how it holds up as to whether we move in again. If it does we will be ready once more to use this winner as a vehicle to more profits.

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: Test 50 day EMA. PCU formed a reverse head and shoulders from mid-May to late July, broke higher, but then immediately fell back to test the 50 day EMA (89.68). It held that level the entire month of August, then bumped higher to end the week. Strong stock and metals are on the upswing. Held 90 well, and looking for a run up to 100 and then toward the early May higher near 105.
Volume: 637.1K Avg Volume: 1.522M
BUY POINT: $93.75 Volume=1.7M Target=$104.00 Stop=$90.85
POSITION: PCU LS - Dec. $95c (51 delta)

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