us stock market, trend trading stock

- Strong jobs number fuels an early bounce, then selloff, then bounce, then selloff, then bounce . . .
- In this corner, strong economic data. In the other corner, softening leading indicators.
- Earnings winding down, FOMC and jobs report in the bank: time for the leaders that have held support during the selling to take the lead if there is to be a year end run.
- Lessons from the week: Keep focused on the actions of leaders to hold emotions in check and stay at the top of your game.

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

Chart by StockCharts.com

Company Profile
China plays, despite all of the talk about it being overbought, are without question one of the groups of market leaders here in the states. BIDU, CTRP, CMED, SOHU, EJ, and EDU. They have made us and are making us some outstanding money in their runs.

Let's take a newer issue, EDU. It came public in September 2006 and has been on a run for most of its life. It formed its first base of note from July to late September, breaking out on strong volume. It rallied, then tested, and we put it on the report. The first test of the breakout is our favorite entry point, and thus when it started up off that level we were going to be in. On 10-5 it started higher off the test and we moved in at $65.55 and bought some January $55 strike call options at $8.70. It bounced up and down for a couple of sessions then took off, rallying to $77 as of 10-17. It gapped higher and then started to peel back; after a good run we like to bank some gain and we took part of the 16.8% stock gain and sold some calls for $16, banking 83.9% on those ($730/contract).

Nice, but we were not done. There is not just one point you can buy into a strong stock. The first test of a breakout is great, but the stock will make 4 to 5 runs after that move, and with a stock that can peel off big chunks of real estate, we will look to move in on those pullbacks. Thus on 10-11 when it broke higher and cleared the breakout peak, we added some positions at $68.61 and some January $70 strike call options at $8.40. EDU gapped higher three sessions later, tested, and surged back up. On 10-29 it gapped higher and hit $90. After 5 out of 6 upside sessions it was time to bank some of this gain. We sold some stock at $89 for a 29% gain and sold some options at $22.90 for a 172% gain ($1450/contract).

Of course, the stock was still not done and thus neither were we. Before it made that big surge in late October, EDU came back to test, moving down to the 10 day EMA on 10-19, tested lower the next Monday, but recovered sharply. We put it on the report again that evening, and on next session EDU gapped higher. We picked it up as it tested that gap and started to rebound. Some more stock at $76.28 and some January $75 strike calls at $10.50. EDU took the next day but then surged over 8 sticks the next session (10-25). It continued higher; $1.31, $5.58, then rested on 10-30. That was part of that strong run mentioned earlier. We sold some stock for $89.23, a 16.9% gain, and some of the options for $19.50, an 85% gain or $900/contract.

After that last run EDU has come back to test, tapping at the 18 day EMA on Friday and rebounding some. Yes, we are looking at playing it again. We LOVE to focus assets in strong winners, rolling up into a strong stock as it rallies. EDU should have another 1 to 3 runs off the 18 day EMA on this move, and that will put our initial stock and options at huge gains as we ride the rest of those positions higher after locking in some great gain and letting the rest work for us. Great way to make a lot of money. Find the winners, move in, let them run their first move, take some gain, add when they test, let them run, take some gain, etc.

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 10-24-07
STATUS: Test 50 day EMA. NOV is a powerhouse with an impressive run from February to mid-October. It made us some great money on its last run and it is in the process of setting up for another great move. It is a case study of a strong stock's lifecycle. It broke out in February and rallied up the 18 day EMA until August. After that move it needed a breather and it came back to the 50 day EMA to test for three weeks, forming a short double bottom. Then it was on the rally again, moving up the 10 and 18 day EMA through mid-October, then coming back to make its test of key support at the 50 day EMA (70.08) once again. It looks like it just came off its second bottom on this double bottom test of support, and if it continues higher from here on rising volume we will be looking to move into NOV and ride it up the 10 and 18 day EMA once again for another 15 to 20 points.
Volume: 5.522M Avg Volume: 6.05M
BUY POINT: $74.35 Volume=7.5M Target=$88.95 Stop=$70.89
POSITION: NOV BO - Feb. $75c (52 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.