world stock market, us stock market

- CAT gives up on the US economy, raising further mortgage & credit fears and fueling expiration Friday selling.
- Oil runs to $90 but energy balks: too high for its own good?
- Lots of recession talk, and after 5 upside years that is normal. What the market is telling us about it.
- Market giving the October surprise we discussed last weekend.
- Looking for some leaders to hold up and others to recover from some fear-driven expiration selling.

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

Chart by StockCharts.com

Company Profile
We figured after the run higher in September, usually a weaker month for the market, that stocks would find something to worry about and start to struggle as earnings season got underway. The logical choice for downside is the financials given that the mortgage and credit issues are still swirling about. Thus we looked around and saw that WB had formed an interim double top after a rather weak rebound from the summertime selling when the selling crescendo occurred. We saw it break down on some volume from that double top on 10-16-07 (Tuesday) and put it on the report that evening.

WB started lower again on Wednesday, and we moved into the play with some November $50 put options. The cost of the options were $240 each or $240/contract. Based on the stock's prior declines and its support levels we put in a target at $46.78, almost a 2 point move to the downside. We calculated that move would give us roughly a 48% gain on our options when it hit that point. You can calculate this ahead of time by multiplying the delta by the expected move and dividing by what the option will cost you. A lot of programs can do this for you quickly if your math skills are as rusty as some of ours.

Anyway, we expected a pretty quick run lower as the earnings season hit and more results came out. Sure enough it was down the day we moved in and then Thursday it gapped lower and sold to $47.25 on the low, getting close to our target. It then rebounded and recovered a third of the loss and we wondered if it was going to rebound on us. Given that it was weak and that some key financial earnings were coming, we decided to stay with it. Sure enough WM missed and we all heard about the BAC results. When CAT said the US economy wasn't for spit, our work was done. WB gapped lower again and sold to our target and beyond. As it was Friday and the selling was brutal overall, we did not want a rebound early next week to undercut a good gain. Thus we sold some options for $3.60, banking some excellent 50% gain in less than three sessions. The action to the downside is very quick like that because panic is stronger than greed. We will let the stock rebound after this week of selling, and see if it sets up another entry point to the downside for another quick and profitable run (for us) lower.

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.

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

Chart by StockCharts.com

Company Profile
EARNINGS: 11-15-07
STATUS: Reverse head and shoulders. When times get a bit iffy the consumer must turn to coffee or some other bracer. GMCR is one of those companies that has a great product name that is also addictive (the product, not the name). It thus continues to move higher and higher, and is now set to make a new breakout from its latest base, a 10 week jobber. It is coming off the 10 day EMA, rising on stronger volume Thursday and Friday to the breakout point. It closed off its high and at the session low Friday, but it still looks super to percolate to a new all-time high.
Volume: 356.631K Avg Volume: 396.195K
BUY POINT: $40.06 Volume=450K Target=$47.98 Stop=$38.37
POSITION: QGM CH - Mar. $40c (53 delta, low OI) &/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.