us stock market, trading strategy

- Stocks take a moment after Thursday high volume sell off.
- Factory orders weaker than expected, but showing strength in the right places.
- Economic data, FOMC meeting join earnings in a data overload week.
- Still see good stocks in good position, but market has to show they are deserving of buys.

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

Chart by StockCharts.com

Company Profile
EARNINGS: 2-12-07
STATUS: Test breakout. No matter what the economic times, people get married, and in the internet age they turn to the net more and more to help out with registry, logistics, hideous bridesmaid dresses, and transportation arrangements to get all of those relatives you never see at the event so you can score more presents. KNOT is the leader in this niche, and it is currently testing the breakout to a new high from a 6 week cup base that formed over the 50 day EMA. It has come back to test the 10 day EMA on lower volume last week, ready to make a higher low as it vows for a new high. Yes, pretty corny, but the pattern is not.
Volume: 411.888K Avg Volume: 557.198K
BUY POINT: $30.36 Volume=825K Target=$36.45 Stop=$28.89
POSITION: BQC GF - July $30c (55 delta) &/or Stock

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).

Pre-announcements are where we put in the long hours of research, chase down leads and rumors, and pump our contacts for information in order to determine if a split is in the works and to pinpoint an announcement date. Pinpointing the date is our primary goal as this allows us many more options in how we play a split. As we primarily focus on leadership stocks in good technical patterns, if we see the stock make the breakout we will get in earlier and ride the wave of speculation up to or through the announcement. Pinpointing a date and time also allows us to open positions immediately prior to an announcement, minimizing our exposure time to the market whims. We employ this strategy regularly in a number of situations. When we have ridden a stock for a few days, a week, a few weeks, up to the forecast announcement, we often have a lot of profit built in. After all, these are leaders and they attract attention moving into earnings, shareholder meetings, etc. We often sell some positions (all or a partial), lock in the profit, and take positions with higher strike call options near the current stock price at a cheaper cost if the stock is not overextended, i.e., has done all of its running before the forecast announcement. This way we bank some profit from the early run, and take some of that profit to play the actual split. Even if the board pulls a fast one on us and does not announce, we still have profit in the bank. This method also works well when the market is choppy, and we do not want to hold positions long. We can often buy right before the announcement and then sell when we feel the split announcement has run its course and the stock starts to pull back. Narrowing the predicted date and time of the split gives us these options.

Here's a pre-announcement play and our current analysis.

Chart by StockCharts.com

Company Profile
As the market turned a bit choppier we made sure we looked at some more defensive areas such as drugs and drug related services. VIVO caught our eye in late December as it came off the 200 day SMA, looking to put the finishing touches on its solid 9 month base. We put it on the report 1-6-07. On 1-10-07 it blasted higher on strong volume for this stock. We love catching the breakouts from strong patterns because they are explosive initially and then after they test they continue the run higher.

We bought some stock at $25.75 and some April $25 strike call options at $2.95. VIVO added $0.45 the next session and then $0.82 the next. It took a lower volume breather for a couple of sessions and then was off again, adding $0.42 and $1.12. Over the next 5 sessions it added another $1.20. Not huge, but the kind of surge we expected. As the market was getting dicey to end the week we decided to bank some gain, selling some stock for $28.65 (a 11.2% gain) and some options for $4.50 (52% gain). VIVO still looks strong and we are letting the remaining positions run higher in new high territory where there is no resistance.

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