us stock market, trend trading stock

- Oil or stocks: one has to go down.
- Emerging leadership takes on a bit of a defensive look.
- More evidence of demand destruction for oil and gasoline.
- Existing home inventories hit a 23 year high: the last bottoming sign is not in place yet.
- Divided house: Still some good stocks in great position, but the market is again bifurcated.

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

Chart by StockCharts.com

Company Profile
Sometimes the easiest plays are right in front of you. If you keep up with the leading stocks in the leading sectors and look for the several opportunities to play them during a run you can get in early as well as get in again and again because a strong stock in a strong sector on a strong run will make many quality moves to buy into. Thus we often will play the same stock over and over and over again as it makes its run, buying in early and then adding and taking gain all the way up.

DRYS is a stock that made us huge money in 2007, and after a solid base in 2008 it set up to make us some more. We played if off the April bottom for a nice surge. When it started to test that surge we waited to see how it set up, picked our buy point, and then waited for it to break higher for us.

We put it on the report on 4-26-08 as it tested a strong move up through the 200 day SMA that week. It broke higher to start the week on some rising trade so we moved into the play with some stock positions at $86.45 and some September $85 strike call options at $14.80; somewhat pricey, but with the pattern we saw and DRYS' ability to rip off big runs, we wanted to leverage our money for gains more than just with stock.

It wasn't instant gratification with DRYS as it tested the 10 day EMA on very light trade the next three sessions, showing a nice tight doji on the candlestick chart that third day. That indicated it was ready and sure enough the next session DRYS gapped up, closing higher by 6.65 points. It was steaming ahead. It added 3 points over the next two sessions, tested for a couple of sessions, easily holding the 10 day EMA, and then broke higher again, rallying for the next 5 sessions, moving up almost 19 points.

The last session was a gap higher that could not go anywhere. That put us on alert that this particular leg of the run might be over. The next session DRYS gapped modestly higher once more, ran a bit higher, but then started to reverse ground on strong volume. With those gaps and the run higher it was exhausted. We always watch for this after a strong run as it is a tell tail sign. When it reversed we knew it was time to bank the gain. We sold the stock for $109.65, a solid 26.8% gain. We sold the options for $31, taking in $16.20 per option ($1620/contract) or a 109% gain. Sweet.

That gap and reversal on volume proved to indeed be the end of the run. We watched it fall to the 10 day EMA and wanted to play it again, but it struggled further, falling on high volume into Friday. We will see if it holds the February peak, the 'hump' in its double bottom pattern and rallies on strong volume from there. If so, we can look at moving in 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: 7-30-08
STATUS: Test 18 day EMA. Finished the week at the 18 day EMA on low volume. Looks as if that is the bottom of this test and looking for CMI to put the break higher in for us this week. To recap: Surged higher to end April, rallying on its earnings out of a 15 week base. Rallied to 74 on the breakout run and is now testing near support at the 18 day EMA (67.23), tapping that level on the low and rebounding to close flat. Nice low volume test shows few sellers. Looking for CMI to continue its move higher off of this test with a good shot of volume.
Volume: 2.322M Avg Volume: 2.962M
BUY POINT: $70.57 Volume=3.2M Target=$84.95 Stop=$67.11
POSITION: CDM IN - Sept. $70c (59 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.