us stock market, trade stock

- Futures are down, no up, no down. Market whipsaws on every news story but the sellers win out another session.
- It's a bird, it's a plane, no it's the Fed rushing in to make some more history and bail out a brokerage.
- CPI is not bad, showing no increase, but again you have to wonder where this data is coming from.
- Michigan sentiment improves, showing more resiliency than investor sentiment.
- Many are talking about a bottom, and while there are definitely positives, VIX, $110 oil are standing in the way.
- Worries about the next shoe to fall after BSC slaps the pavement. Maybe the market can finally test the lows and try a bottom.

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

Chart by StockCharts.com

Company Profile
This market is providing both upside and downside plays as it tries to put in at least an interim bottom at the January lows. Because it is having such a hard time it is bouncing all around, and stocks are doing the same with stocks breaking to the upside and the downside.

CAM is in the energy sector, and overall it is quite strong. CAM has not been. It double topped in Q4 2007 and fell through the 200 day SMA. It rebounded, then broke back through that level. That is a sign of some serious weakness. When it made a low volume test of that break but couldn't make it up to the 200 day, we put it on the report (3-5-08), ready to make a play to the downside when it turned again. It was a post split, but we won't hold that for it or against it; we just play what is there.

Didn't have to wait long. The next session it fell from the low volume bounce on rising, above average volume. We moved in with some May $42.50 strike put options when the stock was trading at $40.47. That gave us a good delta (the rate of change in the option price for every dollar the stock moves) for the price (we paid $3.05 for the options), and that combined with a pattern ready to tank is how you make money on downside put plays.

It broke lower and closed down $1.63 at $40.62. The beauty of these tests of a break of key support is that a stock will typically collapse quickly. The next session it fell $1.36. The next $1.57. That took it down to the early February lows, the lows on this run and also a support level from back in the late summer 2007. That was our target. After three hard downside days and a close at support, it is always a good idea to take some gain, particularly if you are looking to play that particular move. If it makes the move, take what the market gave you because that is exactly what you expected.

We sold the options for $4.30, banking a 40.9% gain in less than three days in the play. The downside is quick and when you get big downside moves in a hurry, lock up some gain. Sure enough, on 3-11 CAM bounced $2.21 and then another $2.57 the next. Again, that is why when you have a hard downside move to support, you take your gain. We did and it was quick and easy and frankly, quite fun. The downside is typically that way because you don't have to wait around long.

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: 4-24-08
STATUS: Test 18 day EMA. Rallied nicely after tanking like a bag of tar sand in January. It is moving laterally this month as the 10 and 18 day EMA rose to meet it. Tapped the 18 day EMA on the Friday low (104.32) and then rebounding to close at the 10 day EMA. Nice low volume on the move and just waiting for it to make the next break higher on a pre-split run.
Volume: 3.149M Avg Volume: 2.52M
BUY POINT: $108.55 Volume=3.2M Target=$119.95 Stop=$104.11
POSITION: SU FA - June $105c (45 delta)

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