world stock market, us stock market

- Worst case scenario unfolds: breakout reverses sharply on oil price blowout.
- Oil blowout is its own worst enemy as world economies, government intervention will work to bring about lower prices, but not without pain.
- The irony of it all: household unemployment survey dismissed in each month's jobs report, but when the market needs an excuse its hypocrisy knows no bounds.
- Wholesale inventories jump, but only because of huge stores of crude.
- Volatility spikes: Bernanke put in a floor with the BSC take under, and Bernanke started to address oil with the dollar, but the French used him and oil got the draw on him.
- Oil falls or the market falls? Been here before.

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

Chart by StockCharts.com

Company Profile
The market turned up from its selloff lows in March, and has shown good leadership, but even then the market is volatile and more one of individual sectors and stocks versus just a broad run higher. That has forced many investors into fewer sectors and that can result in what are called 'crowded trades' or stocks and sectors with vastly larger than usual open positions. That can be bad if they turn out of favor, but it can be good as well if you recognize what is going on, watch where the money is flowing, move in, and then let the crowd run your position higher.

The steel sector is a classic example of a bull sector with a lot of investors wanting in. We look for stocks in good technical patterns that show accumulation or widespread, orderly buying, and then watch for when the volume starts to run it higher. SIM is a lower priced steel and iron miner and had set up a 10 month base that was part of a larger 15 month pattern. It was coming up off a test lower on low volume, forming something called a 'handle' to a cup base, a low volume pullback after a run higher where some profit takers and short term players sell out, taking some gain after a good run. Nothing wrong with that at all; makes sense to do after a good run. It does, however, often set up a strong run higher if the position is right.

We saw this pullback in the handle to the 50 day EMA, a key support level, and then saw some big, big volume move in as SIM jumped off that key support level on 5-13-08 and we put it on the report that day. The next session SIM continued the move on strong volume and we moved in with some stock positions at $13.67 and some July $12.50 strike call options at $1.80 per option ($180/contract). When a stock sets up this kind of pattern and shows a strong volume breakout move that can indicate big moves ahead. Thus we went in with both stock and options as options allow us to leverage higher gains though there is a higher risk given they are time limited investments.

The pattern proved to be true. SIM closed at $13.78 the day we bought, then started a steady climb higher, adding $0.32 the next session, then $0.29, $0.33, $0.26, and $0.52 before taking a breather, a nice 12.5% run on the opening move. Given that success we were going to let it run further after a rest if it showed a nice 'normal' pause, i.e. modest losses on low volume that hold near support. SIM bounced up and down for a week on low volume, holding its gains even as the market struggled and moved lower. After a quick intraday test to the 18 day EMA that saw SIM bounce right back we knew the buyers were still wanting the stock (they took advantage of the dip and bought it) and we were looking for the lateral move to break higher once more.

On Thursday 6-5-08 it did just that, rocketing higher $1.95 on a new surge in volume, sending SIM to $17.64 on the high. THAT was a move worth taking some gain on with the stock up 29% from our buy point and the options trading at $4.40, or 144% above our buy point. The next session SIM gapped higher continuing the move, but it reversed and closed lower on the session. That is something to be wary of: nice steady run higher, but then an explosive move followed by a gap and rollover. A lot of profits are being taken and you have to be cautious and see how it shakes out from this. Remember, it is a crowded sector and if investors leave they could go in a hurry. In the interim, however, it made us some great, great money by simply looking at good sectors and finding stocks within the sector that are in position to make this kind of 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: Third week of July
STATUS: Double bottom with handle. Friday APD was back off the Thursday surge, giving up some ground on lower though still strong volume. Holding the April and May peaks on the close, and that leaves APD perched in an excellent position to make the break higher once more. Strong pattern, strong stock. To recap: Strong volume, strong price move as APD surges out of its 6 month base. Moving to a new all-time high with panache. Looking to take some positions as it continues the move and then adding to the position on a successful test.
Volume: 2.106M Avg Volume: 1.329M
BUY POINT: New: $104.88 (orig. $106.24) Volume=1.5M Target=$119.95 Stop=$101.65
POSITION: APD IA - Sept. $105c (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.