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- Bernanke gaps stocks higher but end of month shuffle closes them off the highs.
- The importance of the 50 day EMA shows itself this week.
- New month means new money and we will see if the leaders can move through the prior highs with that boost.

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

Chart by StockCharts.com

Company Profile
Despite the hard selling that had every financial station gloomy (and with some good reason), there were stocks that were down but were not breaking down. We saw many leaders from the prior rally holding up at the 50 day EMA while the market sold, and indeed, that was one of the clues that a relief move or holiday rally of some sort was in the works. When we saw that we started looking around for stocks that showed relative strength in the selling because when the pressure lifted they would rally well.

MA was an obvious choice. It announced blowout earnings in late October and gaped higher. It did sell some in the November blood letting, but it did not break down. Instead it used the selling to test its breakout, coming back to and holding near support at the 18 day EMA. Very strong. We saw the pattern tighten up at that level, showing doji's on the candlestick chart, indicating the test was ending. That coincided with what we were seeing in other strong stocks, so we put MA on the report.

It moved laterally for a week but then on 11-28-07 (Wednesday) it made the break higher. The stock surged and hit our buy point. It was flying but we caught it around $191.89, using options for the play, however, given the high stock price. We had a short term, holiday momentum rally in mind so we used nearer term January $195 call options to leverage our money in the play. We bought those for $12.50. That session MA closed at $198.10, up a nice $11.74. It rallied again Thursday over $200 but could only hold $2 by the close. Friday it gapped higher in that strong market surge, hitting $206 on the high. We saw the strength but are always wary of a gap. Thus, when we saw it gap higher we took part of the option gain, selling some calls for $20.5, banking a nice 64% gain ($800/contract) in less than three sessions.

MA is at the prior high and we are watching how it tests here to see if we can let the rest of our positions run higher. In any event this is a classic example of looking for strength when all appears weak and then being ready to move in if a rally ensues. We saw the relative strength in leaders, prepared for the move if it came, and when it did we moved in, rode the play, took some excellent gain in a very short period. That gave us a good early jump at beating the Christmas rush.

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: Announced 10-25-07
STATUS: Cup w/handle. After gapping higher in late October on earnings FLIR was taken lower in the selling to start November, but as with many strong stocks, it held the 50 day EMA (62.44) and bounced, forming the right side of its 5 week base. Strong volume Wednesday, lower, below average trade Thursday and Friday as it moved laterally, forming the handle. Very solid pattern and will let it finish forming the handle and then catch it as it breaks higher from this base.
Volume: 641.802K Avg Volume: 672.312K
BUY POINT: $69.68 Volume=1M Target=$80.35 Stop=$66.88
POSITION: FFQ DN - Apr. $70c (55 delta, 173 OI) or FFQ AM - Jan. $65c (68 delta) &/or Stock

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