world stock market, us stock market

- Techs pick themselves back up and financials come back to life, delivering a strong 1 - 2 punch.
- The rest of the world views the US economy as a leper. Expecting a market breakout as a result.
- FOMC decision is on tap for Wednesday and a 50BP cut will spring the next leg.

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

Chart by StockCharts.com

Company Profile
Going back to the well, or in this case the seas, is something we do quite a bit. If a stock is a leader and is getting money pushed its way it will give us many occasions to profit from it. We caught DSX when it broke out in September from a nice 10 week base, and as we always do, we were watching for the first test of that breakout to give us another play on the stock. A strong stock will break out from a base and then rally 4 to 5 times off of the 10 or 18 day EMA before it needs to take a deeper test and consolidate some. The first test of a breakout is probably our favorite entry point because when a stock starts to rebound from that test on volume, that shows us that the big money still wants to own the stock, and it is willing to pay up to get it. Thus the first test 'proves up' the breakout.

DSX showed it was reaching the end of its first run on the breakout on 10/11/07 when it gapped sharply higher and then reversed to close lower. This was after a strong week-plus of gains on the breakout move. We watched it test and hold near support at the 10 day EMA, just where you want it to hold as that shows it is a strong breakout. It started to bounce some on 10/15/2007 so we put it on the report as a buy if it showed us a strong break higher off this test. The next day it gapped higher on stronger volume. It did not hold all of its move on that day, but we like the stronger trade so we moved in with some stock positions at $34.10 and some March $35 strike call options at $6. We usually buy at or slightly in the money strikes, but the delta and the strength of the DSX breakout and run gave these a high probability of returning us a nice gain.

DSX gapped higher again the next session, adding $0.93. Then it was off to the races, gapping again on 10/18 and rallying to close at the session high on very strong volume, adding $3.72. After that move it gapped again but closed modestly lower. That can indicate an interim top, and the next session it opened lower and sold off, but it held the 10 day EMA on the low and rebounded to recoup over half its losses. It is important not to panic out of a strong leading stock as it makes its run. With the market volatile as it has been there will be ups and downs, but if the trend holds a leader is worth holding on to. Indeed, the next session DSX gapped again and closed at a new high, up $3.34. It faded the next session, added some gain the next, and on Friday it gapped again and closed up $2.21 at $42.12 and the options at $10.10. That is 23.5% above our buy point on the stock and a 68% gain ($410/contract) on the options. We took some of the gain off the table on this move as it topped our initial target. We also, however, left a chunk on the table as DSX is showing us some great strength and it can still make us a lot more money. Taking some gain off the table banks some green and it takes the mental pressure off of whether you should sell or not. In that way you can let a winner ride with confidence and really bank the long green as some of the traders here in the office like to say.

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 and our current analysis.

Chart by StockCharts.com

Company Profile
EARNINGS: 10-26-07
STATUS: Ascending base. IDXX announced its earnings and split Friday and enjoyed a nice price surge on strong volume, reaching to 125.69 on the high. It peeled back by the close, losing half its session gains. The move broke it out of a 10 week ascending base, taking IDXX to a new all-time high. The fade off of the high looks as if it is going to give us an opportunity to get on this move. Looking for it to hold the Friday close more or less and then resume the upside run. That is when we step in and catch the pre-split run.
Volume: 433.246K Avg Volume: 205.6K
BUY POINT: $120.55 Volume=275K Target=$138.65 Stop=$115.65
POSITION: UID AD - Jan. $120c (57 delta, 74 OI)

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