us stock market, trend trading stock

- Earnings and expiration power stocks higher leaving NASDAQ a bit of the odd man out.
- Some say market top, some say part of a continued run higher: economic climate and P/E ratios give nod to the latter.
- Earnings overall lower but beating expectations and pushing that liquidity into the market.

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

Chart by StockCharts.com

Company Profile
Often it pays to do the easy thing in the market, i.e. just follow the existing trends in the strong sectors and in leading stocks. So often investors fight the trends, trying to pick some laggard stock off the bottom and hope it turns into a big winner for them. More often than not a stock that is in a downtrend or lagging well behind the market is there for a reason: no earnings growth, poor management, weak sector, or just a weak stock in a good sector. Far better to find a strong stock in a strong sector that is ready to make a break higher, and then jumping on the bandwagon when it does. If a lot of big money buyers are chasing it, then they are going to chase it higher. If you are at that table, you can eat with the big boys.

CMC is in the steel sector, it is a leader in the sector, and in late March it had set up a great pattern as well. Lots of things going for it, and why not look for such stocks? It gives you a big edge over the market and an edge always helps.

We saw CMC coming up to the top of its pattern on 3-19 on strong volume and we put it on the report. The next session it gapped higher, but we waited to move in to see how it held the gap. It did not so we stayed with the rules and waited to see how it responded to that gap and reversal. The next day it was right back at it, moving higher on volume. With that positive response we moved in with some stock buys at $29.54 and some June $25 strike call options at $5.40. That move gave it the momentum, and CMC rallied the next three sessions as well. After four upside sessions we expected a test, and as long as it was on low volume and held near support we would let it make the test and reload for another run. It took two days off and then gapped higher the next two sessions, showing great strength and volume. With that kind of action we settled back and just let CMC work higher for us.

It continued its steady climb up the 10 day EMA, never breaching that support during the run. It would move up three days, then take a day or two off, then move right back up. Friday, CMC gapped higher once more, hitting just below our initial target at $34.95. It started to fade some, and after four bounces up off the 10 day EMA it was ripe to take some profit off the table. We sold some stock for $34.45 (16.6% gain) and some of the options for $9.50 (75.9% or $410/contract). No $5 point moves in a session, just a solid stock in a solid sector with a solid pattern to propel it. When it showed the buy signal we moved in, rode it higher and took a nice meaty gain, and now we will let it test and run further for us if it will.

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: 4-30-07
STATUS: Ascending base. COG distributed some on Thursday, but Friday after a quick tap at the 50 day EMA (33.93) on the intraday low it reversed and put together a nice gain on lower but still above average volume. With the Wednesday test lower to that level as well, it looks as if COG has the sellers worked out of it. Strong money flow is starting to turn back up. COG looks like it is ready to make the jump higher.
Volume: 1.228M Avg Volume: 1.065M
BUY POINT: $35.75 Volume=1.4M Target=$41.95 Stop=$33.88
POSITION: COG GG - July $35c (58 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.