- Stocks once more give up most of an early gain, finish the week status quo.
- Congress' failure to pass auto bailout legislation leaves the bailout size and requirements at the whim of the Executive.
- LIBOR continues its fall, trying to match pace with the US treasuries.
- Market has some leadership and technical positives to take it higher to New Years.

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

Chart by StockCharts.com

RMBS (Rambus, Inc.)
Company Profile
You know its time to buy when everybody is down on a sector. Chips are basically despised. Of course they were despised in late 2002. After all, the techs were the scapegoats of the 2000 crash and were equally questioned and reviled when that bear bottomed in October 2002. Yet, the chips helped lead the market out of the lows in that initial rally from October. We made a lot of money off the chips from that October to the end of that year as many doubled in price.

Once more chips are reviled. Just heard on one of the after hours trade shows Thursday that the chips were finished, dead, forget ‘em. Funny. There are some nice patterns setting up and breaking higher here. Just banked a quick 11.5% stock and 41% option gain on part of a BRCM position, and looking to pick up more after this test on Thursday back to near support at the 10 day EMA. SMTC is in a very nice pattern as well, coming back with a nice test of the 50 day EMA after breaking higher the past two weeks.

Then there is RMBS. RMBS seems to have been involved in litigation since its inception. It was a poster child for the 1990’s tech avarice, rocketing from the thirties to over 300 from 1999 to early 2000. Then the tech crash and the unending litigation as it sues every chip maker on earth for patent and licensing violations. It won a lot of the cases, but even that did not insulate it from the second half 2008 meltdown. It sold off then tumbled lower in October. You know the story: the lazy but quiet ne’er to well next door turns violent.

Anyway, RMBS made a new low in late November, undercutting the October low. But then it bounced. And it bounced on volume. Another court victory? Well, yes. But talk about the timing. The entire market was bottoming as well. RMBS bolted higher on very strong volume. The move was strong enough that we were unable to take advantage of the first surge. As is always the case, however, a stock has to test a move, whether up or down. It faded on low volume toward the 50 day EMA it cleared, and we put it on the report, looking to catch it as it continued the break higher.

It gapped higher right after we put it on the report, and we moved in as it did, picking up some stock positions at $12.29 and some February $10 strike call options at $4.60. That is the move that jumpstarted the next leg, the second leg, of the run. Over the next seven sessions RMBS rallies straight up, moving to $15.98 on the high. On 12-17-08 things got volatile with a reach down to 14 and then a rebound back up to close at $15.75. With the run it had made, the volatility, and its proximity to the 200 day SMA at $16.30 (our initial target), we decided it was time to bank some gain. We sold some stock for $15.63, not the highest of the session, but a solid 27+% gain. We also cashed in some of the options for $6.70, $220 per contract or a 45+% gain. RMBS snugged up a bit more to the 200 day SMA as of Friday, but we are looking for a test of this move back toward the 10 day EMA near $14. That may produce another entry point.

This is a theme we have been playing with great success the past month and more: sentiment is so negative despite positive, building strength we are seeing in certain stocks, certain sectors, and indeed in the market itself. Universal revulsion, the kind that makes investors bleed billions out of their stocks funds and holdings, is the time to see if there is some market strength showing up. If it is, no matter what your predisposition is, no matter how much your stomach hurts at the thought of the stock market, no matter how strong the urge to throw your laptop through the window, take a look at some strong stocks and buy some when they start to bounce. You make some money once more and the shingles start falling from your eyes.

Stocks are just money making tools. They go up, they go down. The market was in a mode where you bought when the sellers bludgeoned stocks for a few days, then sold when the market shot higher for a day or two or three. Now there is a transition in progress and there are actual leaders with good patterns setting up and breaking higher from sound bases. This is the last link in a technical picture that has improved dramatically starting with the dry up of new lows on the November leg lower. When we see this and see stocks moving, we move in, checking our emotions at the door. We have already made a lot of money on this bounce, and at this juncture nothing has changed the picture such that we won’t make more money as the market makes another break higher off of last week’s test.

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

EPIQ (Epiq Systems--$16.21; +0.11; optionable): Technology solutions for the legal profession
Company Profile
EARNINGS: Late January 2009
STATUS: Test 18 day EMA. EPIQ made us some good money over the last few weeks. Then it started to test on some rising volume so we took all the gain off the table to see how it held and if it would give us a new buy. It is holding at near support at the 18 day EMA (16.16), and it has shown some increasing volume as it tests and holds this level. That can indicate that buyers are stepping up. We will simply let EPIQ show us if it is ready to continue its move by giving a bounce upside on strong volume. EPIQ is one of the small business service stocks that came off the October low with a vengeance and was an early leader. This test could give it the rest it needs to send it upside once more.
Volume: 505.577K Avg Volume: 360.605K
BUY POINT: $16.77 Volume=545K Target=$19.88 Stop=$15.84
POSITION: FQU DC - Apr. $15c (67 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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