us stock market, trend trading stock

- Mixed session ends a constructive week, manages to hold gains, but not all questions answered.
- Techs step up to leadership once more, but the China rebuild trade spurs tremendous Friday gains in oil, energy, metals, materials.
- Housing starts post a surprise gain as housing, other economic indications show firming . . . outside of sentiment.
- $4/gallon gas just in time for Memorial Day.
- Trying to add to the breakouts against what seem impossible odds.

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

Chart by StockCharts.com

Company Profile
One thing we always do when looking for any play whether it is for stock splits, technical trades or whatever is look for leaders in strong sectors. Historically that means looking at new issues in hot sectors with new technologies. This past year one of the best is the solar area and the stocks coming out of that group.

We spotted SOL as it came out of its first base in April of this year. It came public in late January then immediately fell into a base. It broke out in April and we looked for the first test of that breakout to give us an entry point. The first test of a strong breakout can be one of the best and safest buy points: if the big money is going to stay with the stock it will step in as the stock tests near support, typically in the form of the 10 or 18 day EMA, and then drive it to some really huge gains.

We put SOL on the report on the weekend report on 5/3/05 as it had found the 18 day EMA on 5/01 and then bounced modestly the following session. On Monday 5/05 it gapped higher, tested the 18 day EMA intraday, and then rallied to close near the session high on rising, above average volume. We moved in with some stock positions at $17.28 and some July $15 strike call options sporting a 65 delta (the option price would move $0.65 for every $1 move in the stock) at $4.40.

The next session SOL added $0.98 on even stronger volume; the second leg of the breakout run was definitely on. Of course a stock does not rally in a straight line and you have to give a strong stock on a solid move some rope to run. The next session it lost $1.20, but volume was lower and that indicates there are still more buyers than sellers of the stock. It caught itself at the 10 day EMA and held that level the next session as well. Then it was off toward the sun again with a $2 gain, a pause, then a $2.84 gain, a $0.63 move, then a $3.91 on Thursday before pausing on Friday. We banked part of the gain as the stock had rallied 51% and the options were trading at $11.20, sporting a nice 154% gain.

It is always good to bank some gain on the big surges, particularly with options, but with a strong winner that is a new issue you also want to keep some positions and just let them keep working for you. We are going to let those do just that, but we are also going to look for the next test to give us another opportunity to get in on some more ReneSola because when a new issue makes these kinds of breakouts, there is more than just one run in them.

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 3-12-08
STATUS: Double bottom w/handle. Nicely formed 12 week pattern has formed inside a larger 5 month base, forming the double bottoms near the 200 day SMA (31.65), bouncing to start the month, then working laterally back to the 10 day EMA the past week. Bounced Friday on some better volume, just clearing the 90 day SMA. Poised to make the move higher and deliver a breakout. Really like how VIP has plenty of room overhead to run and make us some great money without having to plow new ground. A strong runner in 2007 that peaked in late December, VIP has now set up a nice base to give us a good entry point when it jumps back up on strong trade.
Volume: 2.898M Avg Volume: 3.297M
BUY POINT: $34.24 Volume=4.5M Target=$39.95 Stop=$32.24
POSITION: VIQ GF - July $30c (77 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.