us stock market, trading strategy

- Market was leaving the building when word of another mortgage bailout triggered a massive pre-weekend short covering run.
- Will this bailout do the trick for the financial markets?
- Last hour comeback was impressive, but was it just a Red Bull moment with another selloff coming this week?

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

Chart by StockCharts.com

Company Profile
When the market was selling in mid-January we were doing what we always do, looking for stocks that held up well and using the selling to set up their next move. One such stock was MM in the steel sector. Indeed, many stocks in steel were setting up well but MM was in a very nice pattern, having formed a 17 week double bottom. That pattern is more common in a volatile market such as this one.

We saw it break out of its pattern on solid trade on 2-7-08 and put it on the report. The next session we saw it break higher once more and we moved in with some stock positions at $52.78 and some April $50 strike call options at $5.30. It finished that session flat, then was back to the upside again the next session adding $1.16. It tacked on another $1.88 the following session as it had the momentum. That is what we like about breakouts from stocks in leading sectors: they are getting the money and that tends to drive them higher in nice breakout runs. MM made the obligatory pause and test over the next three sessions, fading back to tap at the 18 day EMA intraday and rebounding. Then it added another $1.24 on consecutive sessions. The following session (2-21-08) it gapped higher, rallied to $59.61 but then started to stall. We decided to lock in part of our gain given the great move on volume that was still low. We sold some stock for $59.51, taking a 12.75% gain and also sold some options at $9.80, banking a nice 84.9% gain. Not bad for a couple of weeks in the play in this market. Of course it continued higher on Friday, but that was okay; we moved up the stops and will let the remaining positions rise as long as they will. When we get a good test of this strong move we will look at loading up once more and riding MM for the next run.

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).

Pre-announcements are where we put in the long hours of research, chase down leads and rumors, and pump our contacts for information in order to determine if a split is in the works and to pinpoint an announcement date. Pinpointing the date is our primary goal as this allows us many more options in how we play a split. As we primarily focus on leadership stocks in good technical patterns, if we see the stock make the breakout we will get in earlier and ride the wave of speculation up to or through the announcement. Pinpointing a date and time also allows us to open positions immediately prior to an announcement, minimizing our exposure time to the market whims. We employ this strategy regularly in a number of situations. When we have ridden a stock for a few days, a week, a few weeks, up to the forecast announcement, we often have a lot of profit built in. After all, these are leaders and they attract attention moving into earnings, shareholder meetings, etc. We often sell some positions (all or a partial), lock in the profit, and take positions with higher strike call options near the current stock price at a cheaper cost if the stock is not overextended, i.e., has done all of its running before the forecast announcement. This way we bank some profit from the early run, and take some of that profit to play the actual split. Even if the board pulls a fast one on us and does not announce, we still have profit in the bank. This method also works well when the market is choppy, and we do not want to hold positions long. We can often buy right before the announcement and then sell when we feel the split announcement has run its course and the stock starts to pull back. Narrowing the predicted date and time of the split gives us these options.

Here's a pre-announcement play and our current analysis.

Chart by StockCharts.com

Company Profile
EARNINGS: 5-7-08
STATUS: Double bottom w/handle. Nice set up here as it sold back on Friday to tap at the 18 day EMA (43.83) on lower, below average volume, then bouncing modestly to hold near support. This is forming the handle to a 7 week double bottom using the 50 day EMA and the 90 day SMA on the lows as support. Part of a much larger 22 month double bottom with handle, and this pattern is the last part of that larger base. Large base, large run on the breakout. Part of the corn craze (a.k.a. ethanol insanity), so there is a continuing demand for its products. After this pullback looking for a new strong breakout to give us the entry point.
Volume: 6.133M Avg Volume: 6.679M
BUY POINT: $46.15 Volume=10M Target=$53.95 Stop=$43.94
POSITION: ADM FI - June $45c (59 delta) &/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.