us stock market, trend trading stock

- Fed adjusts its course again and market adjusts as well.
- Job creation offsetting predictions of housing-led recession.
- Sentiment quite ebullient after this last push: yes you can buy higher and sell higher, but you have to be smart about it.
- Transports confirm DJ30 new high.
- Beyond the latest FOMC meeting and earnings season.

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

Chart by StockCharts.com

Company Profile
WEBX is one of those market leaders that enjoyed a strong run through September 2006 and then needed a break. It fell into a 4 month downtrend and basically fell off of a lot of radar screens. We always run proprietary scans that key on certain factors we consider important when a stock is preparing to make an explosive move. We saw WEBX when it broke back up through some key resistance in its downtrend in late January. Now we could have jumped in right there, but the volume was not huge; it was not a sure breakaway move. A stock typically tests such a move, however, and if you are patient you can see the test and then see how bad the big money wants it by how aggressively they pursue it after it tests.

WEBX tested the move very quickly and then bounced off the 50 day EMA on 1-29-07 on strong volume. We put it on the report and looked for an entry. It gapped higher the next session but closed well off the intraday high. We waited, and the next session (1-31) it showed a modest loss and a nice doji. Earnings were out after the session and this was a stock that has been putting together big earnings moves as it grows its VOIP business. You probably know what happened: it gapped almost $3.50 higher the next session, gaining $7.95 by the close. The next day it added another $1.36. We sold part of our stock for near a 20% gain and some of the options for $10.10, banking over 100% profit in what you could call a relatively short period of time. It does not always happen in such dramatic fashion, but there is a reason we watch leaders that have fallen back but make important moves ahead of key events such as earnings. The payoff can be quite nice.

Indeed, on Thursday and Friday of last week we took some gains on 16 option plays with a combined profit of $39.40/option (an average of $2.46/option). The minimum number of options you can buy is 100 (a contract), and most of our plays are 10 contract or more plays. It was a good week. We took our positions before the last surge, when sentiment was not so positive but the stocks were telling us to buy them based upon their actions. When everyone was in a rush to buy on Thursday and Friday, we were in the nice position of deciding if we wanted to take some gain off the table. We took some but not all because these leaders still have room to run. After a good run, however, it is always a good idea to bank some gain.

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
Techs jumped out to the market lead in early 2007 and garnered a lot of the attention as some of the leading industrial sectors through 2006 sold. After a quick sell off, however, metals started to recover almost immediately. There was some damage done, but we put several on our watchlist so we could keep tabs on them. STLD continued to recover, working laterally over near support at the 18 day EMA. On 1-23-07 it suddenly surged on rising volume. We slapped it on the report, ready to move in. We caught a break the next session (1-24-07) as STLD gapped lower but then started a furious rally. We bought some stock at $34.73 as it rebounded and some May $32.50 strike call options at $4.50/option. That was not a bad price and we liked the $32.50 strike because that gave us a solid delta (the amount the option will move given a $1 move in the stock). We love playing options on strong breakouts because the stock tends to move fast and that really pumps up the option's value as volatility rises in addition to the stock price.

STLD gained about $1 above where we bought in that first day. It gapped higher the next session for another $1.77; when a strong stock makes a break it tends to really move. It took a breather after the three upside sessions, losing $0.45, but then vaulted $2.70 the next two sessions. It paused again for a session and then gapped up once more on 2-1-07, but this time it could not make that really big surge. When we saw that, we knew the gas was gone for this initial surge. We sold part of our stock position for $39.63, pocketing a 14% gain. We also sold some of the options for $8.10, pocketing $3.60/option, an 80% gain. Again, we love playing options on these breakouts because they return large amounts in a short period by virtue of how their prices are impacted by swift moves in the underlying stock. They gain more value in a quick, explosive move than they would with the same move by the underlying stock that takes two weeks.

Indeed, on Thursday and Friday of last week we took some gains on 16 option plays with a combined profit of $39.40/option (an average of $2.46/option). The minimum number of options you can buy is 100 (a contract), and most of our plays are 10 contract or more plays. It was a good week. We took our positions before the last surge, when sentiment was not so positive but the stocks were telling us to buy them based upon their actions. When everyone was in a rush to buy on Thursday and Friday, we were in the nice position of deciding if we wanted to take some gain off the table. We took some but not all because these leaders still have room to run. After a good run, however, it is always a good idea to bank some gain.

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