us stock market, understanding the stock market

- Jobs report, additional Fed action rev up stocks, but the stronger start doesn't last.
- Stock market still looking for some power in its move higher.
- Commodities continue their recovery despite that rising dollar.
- Jobs report provides encouragement, and economic data improved, but with energy and food prices surging, can robins be on the economy's yard.
- Watching the commodities, tech, financials, and transportation as indicators of the rally's health.

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

Chart by StockCharts.com

Company Profile
What the heck is ITU? Well we were watching how financials were performing heading into the FOMC meeting, and while many US financials were moving higher on low volume, some foreign banks were showing great patterns and solid volume. ITU was setting up an excellent pattern to break to an all-time high, fading back from a strong upside break in mid-April, testing back to near support at the 18 day EMA on low volume. That showed it was just resting with no heavy selling, and that told us it was getting ready to break back to the upside.

We put it on the report 4-26-08 as it made the test, with the mindset we would jump in on a break higher accompanied by strong volume. It took a couple of sessions but then on 4-30 (Wednesday) it shot higher on strong volume. We bought into the move with some stock positions at $27.96 and some September $25 strike call options for $4.80, sporting a solid 65 delta, meaning the option would move roughly 65 cents for every dollar the stock moved. Those options cost us $4.80 each or $480/contract.

That was a big day for ITU, but when a stock breaks out from a solid base as with ITU, it will tend to move rapidly as the buying strength jumps it higher. The next session ITU added another $1.61 to close at $29.66. The next session (Friday) ITU gapped higher at $31.49 and rose to $32.35 on the high. When it started to turn over we sold some stock positions for $31.12 and an 11.3% gain. We also sold some options for $7, banking a 45% gain ($2.20/contract). Not bad for just over 2 days in the play.

This just goes to show that not only the big names can make you money and make it fast. Watching solid technical patterns and keeping your eyes open for leading stocks in leading sectors is the key. These are our favorite plays because these factors stack the deck in our favor, and that is what you want in the market.

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).

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: Announced 4-12-08
STATUS: Test breakout. Surged higher on earnings, clearing a 14 week base and rallying just over 85 on the move. Has spent the past two weeks testing, and unlike many energy stocks, ACI did not break down, just tested easily, holding the 18 day EMA (79.37), its near support. Volume jumped Thursday as it tested and rebounded. Very nice action and just waiting for the break higher on strong trade.
Volume: 4.707M Avg Volume: 5.285M
BUY POINT: $59.68 Volume=5.5M Target=$71.75 Stop=$55.54
POSITION: ACI GL - July $60c (54 delta) &/or Stock

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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