us stock market, trend trading stock

- Relief bounce takes back some losses ahead of holiday.
- Existing home sales knock the housing market back to reality, but economy continues to improve even without housing.
- Market not likely done with this round of selling, but don't tell that to some leading stocks.

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

Chart by StockCharts.com

Company Profile
We really like playing the exchanges in this market because they are strong technically and fundamentally given all of the trading. ICE made us a lot of money in 2006 on into 2007 with that impressive September to February run. After that it was out of gas and needed some R&R to form a base, get rid of some owners, and prepare for the next run. We watched it after the pullback bottomed, keeping an eye on it to see when it was ready to start higher. In May it came off of a shakeout that took it close to the prior lows in the pattern. That showed us the buyers were supporting it, accumulating shares. It started working in a tight lateral range, and that told us it was setting up for a break higher in its pattern. We put a play on the report on 5-8-07.

The next session ICE bounced higher on stronger volume. That is what we were looking for as our entry point. We moved in with some September $140 strike options at $14.20. The stock was trading at $137.48 and with the move we anticipated ICE would make we did not mind being out of the money some. ICE rallied almost $3 that day and was up another 4 sticks the following session before it reversed along with the market. The next day it bounced right back up $5.70; that told us the prior reversal didn't cause any damage to the pattern. ICE was not quite finished consolidating, however, and made one more fade to $137.32 over the next three sessions. Volume remained very low and it held support. We added some more positions.

On 5-21-07 it had enough consolidation and made the next break higher, jumping $6.90. It added $5.32 the next session. After such an explosive move we knew two things. First, ICE would likely take a breather. Second, we wanted to buy more if it held up well. So we sold some of our options for $21.40, banking a 50.7% gain ($720/contract). The next session ICE gapped a bit higher but reversed, closing down almost 3 sticks. Thursday it lost $6.31 as the market and energy really struggled. Friday, however, a nice doji on the 10 day EMA. Thus we are ready to play it again as it comes off of this test of that strong break higher. This time it is going to likely start a steady solid climb toward the old high at $165. That will put some strong coin in the bank.

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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: 6-5-07
STATUS: Flat. Taking another look at GES as it makes a higher low at the 10 and 18 day EMA, easing back to end the week on some low volume. Higher and higher lows below a steady top at 42.50. We like that combination as it builds pressure from below and the breakouts can be somewhat spectacular. Nice tight doji with tail Friday and money flow moving up. It has taken a bit to set it up but it is pinching off at the end of its 14 week base and it is going to either break higher or break lower from here. Like the action as it indicates an upside move.
Volume: 728.6K Avg Volume: 1.3M
BUY POINT: $42.68 Volume=2M Target=$49.65 Stop=$40.55
POSITION: GES IV - Sept. $42.50c (50 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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