us stock market, trend trading stock

- Market bounces right back from the international intrigue, but the upside gains cannot withstand a weak housing report.
- Housing starts hit the slowest annual growth since 1995.
- It is up to NASDAQ to provide leadership into the new year.

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

Chart by StockCharts.com

Company Profile
All you seem to hear about lately is Apple, and frankly, when a stock is so widely discussed and owned you have to start thinking about whether it is reaching a peak. That said, the stock is a Christmas powerhouse because I did not meet one person who was not getting something Apple for someone at Christmas. Just look at the MacBook: it was Amazon's top Christmas seller. Knowing this we were looking for an opportunity to enter some Apple ahead of the holiday season.

AAPL peaked its last sizable run in early November and fell back hard as its new products did not inspire a lot of new buying and it failed to announce a stock split. Before that it had made us a great pile of money on the run from its September breakout. After that drop, however, we were not looking elsewhere, but instead looking at an opportunity for more positions ahead of what was going to be an Apple Christmas. It bounced off the 90 day SMA in November, testing that level one session and then jumping back up. We missed that move, but we knew there was more upside. So, we put in a new buy for when it came up off the 50 day EMA, the support it held at and worked laterally on top of as it regrouped from the disappointment and prepared for the next move higher.

It jumped higher on 11-26-07, showing a solid volume jump as it gapped higher, tested intraday, and then resumed the move. That is when we bought in with some stock positions at $175.11 and some January $170 strike call options at $14.95. The options were a bit expensive but we bought in the money because we were looking for a rather quick 'holiday' play and wanted a lot of bang for each dollar the stock moved. By buying in the money we were able to get a higher delta and thus more movement in our options when the stock rallied.

It did rally. The next session Apple jumped $5.41. It added $4.07 the next day. The following session AAPL gapped higher to $187.34, rallied a bit to $187.70, but then started to waffle. A great quick break higher; just what we were looking for. We banked part of our option position, selling some calls for $21.15 or a 41% gain ($620/contract). Not bad for less than a week's work.

After that move we expected a pullback, and Apple did come back to the 10 day EMA to test, but then it gapped higher again on 12-5, rallying $5.69 that session, then adding $9 over the next two sessions. We thought about taking more gain off the table, but we still had another 15 days before Christmas. We waited, but AAPL struggled a bit, unable to hold the 10 day EMA on its next test of the run. A quick intraday trip to the 50 day SMA on 12-18, however, set the bottom for the final pre-Christmas move. It rallied 16 points in 4 sessions, pushing to a new all-time high. The day after Christmas it rallied once more but then faded, showing a doji on the candlestick heading toward the close after it tapped but could not push through psychological resistance at $200. That can mean a run is over, and with the nice gain in the stock we decided it was time to lock in some more gain. We took part of the 13.5% stock gain when we sold some stock at $198.90, and we sold the rest of the January options for $30, banking a 100% gain ($1505/contract) on those positions. Now THAT is a holiday rally, exactly what we were looking for from a leading stock that would benefit greatly over the holiday buying season. As it is, it easily paid for Christmas around here.

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: 1-18-08
STATUS: Double bottom. After a stellar run through mid-October in 2007 that made us money more than once along the way, SLB has tested back to consolidate to set up the next run higher. It has formed a 10 week double bottom of sorts, using the rising 200 day SMA as support for the two legs. Side-stepped some to end last week, moving laterally right at the hump that is the middle of the pattern. May slide laterally a bit more to form a handle, but we want to be ready to move in when SLB breaks higher from this nice set up.
Volume: 4.545M Avg Volume: 9.092M
BUY POINT: $99.89 Volume=12M Target=$114.95 Stop=$97.92
POSITION: SDB ET - May $100c (53 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.