us stock market, trend trading stock

- Large cap tech dead cat bounce ends a down week.
- Only OPEC, and Congress, would consider raising taxes heading into a recession.
- Wholesale inventories piling up in another indication of an economy in trouble.
- Market firmed at the end of the week but that is not likely going to change the downtrend.

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

Chart by StockCharts.com

Company Profile
When the downside takes over you look for opportunity to play the legs lower just as you look for opportunity to play the runs higher as the market rallies. After the strong selling through mid-January, most stocks rebounded to near resistance. That always provides fertile opportunity to move into downside positions as stocks hit that near resistance and fail. The oil stocks were suffering as oil was declining, and CVX caught our eye as it rebounded from the selling on low volume, stalling below the 10 and 18 day EMA for several sessions. On 2-1 it gapped higher but then reversed to close lower. That caught our eye.

We put it on the report over the weekend, looking to play the downside move from the resistance. Monday the stock broke lower, continuing the reversal move to the downside. We moved in with some March $85 strike put options as the stock was trading at just below $82. We bought the options for $6.10 apiece, or $610 per contract (100 options). The -54 delta told us that the option price would move $0.54 for every dollar. We looked for CVX to test near the January lows, and we calculated the gain based on that move. It was in the 40% range, well worth our time and money.

CVX rebounded that session to hold some support at $82, but the pattern was still weak overall. It turned out well as the next session CVX gapped lower, closing down $2.28. The next session, 2/06, it thumped lower again, moving right down to our target at $77.35. It then started to rebound as we thought it would based on its chart and the prior support from January and also August 2007. The options were bidding $8.70, and as the stock hit support and bounced, we decided it was time to sell. That banked a nice $260/contract or 42.6% in roughly 2 sessions. Again, when the downside comes, it comes fast. You see the setup, move in when the move starts, ride that move and then take your gain. We will see how CVX rebounds again toward the short term moving averages and see if they stall it again and give us another play to the downside.

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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: Third week March
STATUS: Double bottom. RIMM has made a couple of lows on the 200 day SMA (85.73) spanning the past three weeks after peaking in November at 130 and then selling back. Nice solid set up for a bounce higher. May not give us a run to a new high, but it can give us a nice profit as it makes this break higher from the key 200 day SMA and moves with several of the large cap techs that were roughed up in the January selling.
Volume: 22.997M Avg Volume: 30.308M
BUY POINT: $90.31 Volume=32M Target=$103.95 Stop=$85.45
POSITION: RFY FR - June $90c (51 delta) &/or Stock

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