us stock market, trend trading stock

- Fed becoming a game changer as it tries to rein in the credit issue.
- Fed cuts the discount rate, changes it bias in a single bound.
- Shades of 2000, but the Fed is on a completely different page this time.
- Short sellers grousing because the Fed did its job.
- Fed may have more of a propensity to cut now, and the key point is whether the Fed acted in time. The market will show us more on this in the weeks ahead.

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

Chart by StockCharts.com

Company Profile
Obviously the downside was a great play the past few weeks, but as we often say and as we teach in our seminars, it is a tempestuous mistress. You can ride the downside, but you have to be attuned to the signs of the market as to when it is oversold. Thus when some of the shorts were complaining Friday about the Fed action 'rescuing the market,' we had already counted our gains.

For example, when the Dow broke below its 90 day SMA two Fridays back and then rebounded on Monday to test that level but failed, we knew it was going to head lower near term. We had put a downside put option play on the report and were just waiting for the start of the move lower off of that 'kiss goodbye' to enter. On Tuesday it made that move and we bought in with some September $133 strike put options for $4.50 per option ($450/contract).

The Dow closed down 207 points that day, the start of a good downside run. Another 167 points lower the next session took the Dow to its 200 day SMA, but there was no indication it was going to bounce, and indeed, an index will often undercut this key moving average and then rebound. The next session the gloom was very high and the market started lower again. The Dow sold off roughly 340 points. On the way down you could feel the gloom and doom listening to the television anchors; their guests looked as if they had stomach cramps. Then we heard the phrases that indicated this round of selling was overdone. Three times we heard a pundit say the action in the credit markets was 'unprecedented.' That is another way of saying 'it is different this time.' Whenever you hear that you know a bottom of some sort is in.

Our put options were bidding $7.40, and given the size of the decline (The Dow had put in a 10% drop from its high, the fact that it had fully consummated its head and shoulders pattern), AND the 'unprecedented' talk, we took the 64% gain. It wasn't the exact bottom of the decline, but sure enough, that afternoon the market rebounded furiously. Then the next morning the Fed cut the discount rate and the Dow closed up 233 points.

As noted, that left the shorts screaming about 'intervention' and the like, but if you seriously look at what happened, this move was done on Thursday. All of the indicators showed it was going to bounce back up. It is just very difficult in the turmoil to think clearly and realize what the market is telling you. The longs were panicking and sold out. The shorts were greedy and couldn't see the signs for the dollar signs. Thus the longs sold at the bottom and the shorts hung on too long. We went to the bank and made a deposit.

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).

For post-splits, we can play them as we would pre-splits (very short term), but we prefer to stretch our horizons, playing the trend. When playing options, we look further out, 2 or more months at least. We let the trend carry us along if there is one, but we will also take profits if the technical pattern degenerates, e.g., breaks a trendline. The main difference between post-splits and pre-splits plays is that we really have to like the pattern. Pre-splits can run right before their splits even with poor technical indicators. For post-splits, we are looking at the stocks from more of a longer term "would I buy this stock at this juncture?" position. Now there are times when a hot stock splits and investors pile in to get in while the stock is 'cheaper.' We play those, but with more of a short-term, pre-splits mentality in that we will be ready to get out fast if the momentum fades.

Remember, everything we do has to pass muster with the market that day ... don't fight the market on these plays.

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Here's a post-split play and our current analysis.

Chart by StockCharts.com

Company Profile
EARNINGS: Announced 8-2-07
STATUS: Breakout test. ANSS gapped out of a 15 month cup with handle base in early August on those strong earnings. It surged near 36 on the run and then in the market selling last week it made its first test, falling back toward the 18 day EMA (29.71). It bounced Thursday in the market selling, moving on strong volume. Friday it gapped higher. May come back toward 31 to fill the gap, but showing excellent strength and we will be ready to enter some positions as it continues higher.
Volume: 838.922K Avg Volume: 841.193K
BUY POINT: $32.58 Volume=865K Target=$38.95 Stop=$30.48
POSITION: QUS AF - Jan. $30c (68 delta, 99 OI) &/or Stock

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