us stock market, trend trading stock

- Stocks end a mixed week on an up note.
- Inflation in its death throes.
- With the 1990's 'old economy' stocks now the world's 'new economy' stocks, does SP500 and NASDAQ swap places with respect to growth?
- Extended, but that just means pick quality new positions.

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

Chart by StockCharts.com

Company Profile
There is a lot of focus on oil and gas stocks given the summer driving and storm season to come, but it pays to keep an eye on the entire energy sector for good patterns in good stocks because energy of all kinds is still in demand. Thus when we saw BTU (coal) had set up a nice rounded bottom (have to like rounded bottoms) we became very interested. It also had 30 points ahead of it before it hits the prior high. Plenty of room to run and make us money without having to forge new high territory.

More specifically, BTU was basing following a strong 2004 to mid-2006 run. It was forming a big cup base, and since December 2006 it had made a smaller double bottom within the large pattern. What often happens in these bases is a stock will form a base within a base and use the smaller base to launch higher moves. After the extended base, a lot of the overhead supply that formed when BTU peaked last May would be gone (those buyers had sold out already), giving us plenty of upside to that old high without sellers moving in to undercut the gains. That is exactly what we saw in April. BTU had surged to start the month and then started to fade modestly on lower volume, right at the 'hump' in its double bottom. That low volume pullback typically sets up the next break higher, and it is typically where a bigger run starts.

We put in on the report 4-11-07, and on 4-13-07 it moved higher and we moved in with some stock at $46.32 and some September $45 strike call options at $5.40. The next day BTU jumped $2; great way to start the move. It then tested the breakout, something a stock will do. It found support at the 10 day EMA, just where you want it to hold on a breakout test. The next day (4-23) it gapped higher for a $2.55 gain. That started a steady march higher up the 10 day EMA, rallying then testing, making higher and higher lows as it moved higher, showing stronger volume on the upside moves. That is exactly what you want to see as a stock works higher. It continued this action and then broke sharply higher again Friday, rising $2.21 to $53.51. That move took it to our initial target. Since the move was so solid we decided to take half of our gains. We sold some stock at $53.44 for a 15.3% gain and some options at $10.20 for an 88.8% gain or $480/contract. Solid stock, solid sector, and a solid, steady climb. We are letting the rest of our position run higher toward that prior high, something that is a lot easier to do with a healthy chunk of change already in the bank.

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 4-17-07
STATUS: Flying plateau. STLD broke out from a 9 month base in January. It gave a complete test of that breakout to start March, then recovered and started the current trend higher. It is currently in a two week lateral consolidation, very tight and flat as the 10 and 18 day EMA rose to catch up with it. They did that to end last week. Primed in this nice tight pattern to move higher, and we like how it refused to give up any of its gains. It still has 2 to 3 such breaks higher ahead of it, making this entry point one that still has plenty of upside. Very dynamic pattern.
Volume: 1.675M Avg Volume: 1.89M
BUY POINT: $48.78 Volume=2.1M Target=$56.31 Stop=$46.77
POSITION: RQL HI - Aug. $45c (69 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.