us stock market, trend trading stock

- Typical pullback on Thursday becomes a typical tail kicking on Friday.
- Friday economic data closes out a week and month showing a weakening picture.
- Market trying to discount an economic recovery, but will have to hold the January lows to do so.
- Commodities take a breather, setting up a new buy opportunity.

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

Chart by StockCharts.com

Company Profile
Even with the market overall down for its fourth straight month there are still bull markets, and within those bullish sectors there are leaders that are getting the most money. Energy has been strong, but you have to look at the right sectors: independent producers are getting the green while large integrated companies are not.

Within that group we saw XTO setting up a good pattern post-split. Often after a split a stock will pause and base again, and when it is finished it is ready to run once more. XTO set up a short double bottom and broke higher the second week of February on strong volume. We watched for the first pullback to test that base, and it started just before Valentine's week. Indeed, on Valentine's day it fell back from the breakout run, getting closer to near support at the 10 day EMA, a point where we would want to buy it if it held and bounced. We put it on the report and waited for the test to complete.

It did so the next session, tapping at the 10 day EMA on the low and starting to bounce back upside on some tremendous volume; we weren't the only ones looking for it to make this test. We moved in with some stock at $55.21 and some May $55 strike call options at $4.20/option.

The strong volume was a definite indication of demand. The next session XTO gapped higher on another session of strong volume, adding $2.43. The following session it gained another $0.88. It took a hit the next session, but after three upside sessions it deserved a break. It held above the 10 day EMA so we did not mess with it as it held above this key near support level for a stock on the upside move. Then the run started again with gains of $1.45, $1.67, $1.22. That last gain was on 2-26, and after a solid 7 sessions with only 1 day off it was due to take more of a breather. So, we sold part of our stock position at $60.90, banking 10.2%. We also sold part of our options, and with all of the upside strength they had really jumped in price thanks to increased volatility. We sold some for $7.80, a solid 85.7% gain. XTO did take the next day off, but then surged $2.48 the next session before closing down $1.29 Friday. It obviously still has strength, and that is why we left half the positions on the table. When it tests we will look to grab some more positions when it again comes off of near support with some volume.

Thus even as the market finished February lower, its fourth monthly decline, XTO made us some excellent money in a relatively short period of time as it continued higher while the rest of the market suffered. If you look back to the 2000 and 2001 selloff you see the same kind of action in many stocks that held out and rallied well long after the market was well down in its bear.

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: 5-14-08
STATUS: Test 50 day EMA. DE is still at the 50 day EMA (85.34), selling back to that level Friday in the market selling. This keeps it in a four week lateral ascending range after the recovery from the January selling. If it makes a higher low here at the 50 day EMA (has used the 90 day SMA on the two previous lows) that puts us on alert for the breakout move.
Volume: 5.208M Avg Volume: 5.433M
BUY POINT: $90.65 Volume=8.2M Target=$103.95 Stop=$85.91
POSITION: DE FR - June $90c (54 delta) &/or Stock

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