us stock market, trend trading stock

- Inflation numbers add extra weight on a weary market as stocks slide lower to end a down week.
- CPI adds inflation worries to Fed woes as some energy pass-through shows up.
- Dollar has its best week against the euro in over 3 years.
- Market's near term fortunes dependent upon successful Fed auctions starting Monday as well as continued improvements in Fed targeted areas.

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

Chart by StockCharts.com

Company Profile
Back in November when the market sold hard to start the month we were tracking a lot of market leaders that pulled back in the selling but did not break down, i.e. holding their key support at the 50 day EMA. While it looked as if the market was going to roll over, there were many strong leaders that were not breaking this support. With NASDAQ 100 refusing to give up as well, we anticipated a holiday rally and started to put the leaders in the best position to rally on the report.

VIP was one of those. A strong rally from mid-August to late October, it needed a breather before it would be ready to move higher again. When the market sold it used that to its best advantage, pulling back to consolidate its run, and holding at the key 50 day EMA. We put it on the report and waited for it to make the break higher on some strong trade. That day came on 11-23-07 as VIP surged higher. Volume was not huge, but it showed a bit upside volume spike two sessions earlier, showing us the buyers were moving back in. We bought into the play with some stock positions at $32.52 and some April $30 strike call options at $7.00.

VIP got to work. It was up $1.31 the next session, added $2 over the next two sessions, and then took a 2-day selling hiatus where it came back to test the 10 day EMA. Volume backed off so we let it work for us. We also saw the stock test lower intraday and then rebound into the close; that told us that buyers were still coming in on the lows to buy more. That was the test of the first leg of the holiday rally. When December started VIP was back at it. It gained $7 over the next 6 sessions, rising on solid volume. On Monday 12-10 it hit $41.65 on the high. Our initial target was $40.45, and with this 6 consecutive sessions of gain it was a prudent time to take some gain off the table. We sold some stock positions at $40.74, banking a 25.28% gain. We also took some option gain off the table at $12.40, a 77% gain or $540/contract. As we had April options, we let some of the positions ride.

Sure enough it sold off the next session on the FOMC decision, but it held the 10 day EMA near support on the close, and indeed spent the rest of the week holding that level, starting back up almost immediately. Once we saw VIP hold near support on the pullback we moved in with some more positions because we were seeing many leaders do the same thing just as in late November after that month's selling. With its ties to the Russian wireless market, VIP is not dependent upon the US, and that makes it even more alluring as a market leader. Now we see if that relative strength pays off once more.

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: Early February 2008
STATUS: Cup w/handle. MDR split in early September but kept on moving higher to 62.50 in mid and late October. It needed to base after that and then turned lower, forming the current 7 week cup with handle. Nice surge to start December, then it formed the handle last week as the market sold. Instead of selling back much, however, MDR worked laterally above the 10 day EMA (55.95) and the 50 day SMA (55.76). Liked how it did not sell off, just moved sideways, refusing to give up any ground. That is a sign of strength. Good volume spikes on the upside sessions last week, showing the buyers are in the majority. Looking to move in when volume spikes again and MDR makes the break higher, moving toward a new all-time high where there is no resistance.
Volume: 1.267M Avg Volume: 2.281M
BUY POINT: $59.24 Volume=3.4M Target=$69.32 Stop=$55.69
POSITION: MDR BY - Feb. $57.50c (54 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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