Fitz Bits: Play for a Breakout in Manitowoc

Today we'll look at some reader requests:

• Manitowoc (MTW - commentary - Trade Now)
• Applied Materials (AMAT - commentary - Trade Now)
• SanDisk (SNDK - commentary - Trade Now)
• ATP Oil & Gas (ATPG - commentary - Trade Now)
• iShares MSCI Emerging Markets (EEM - commentary - Trade Now) ETF

Each day, I'm featuring several reader requests for the current technical take on a stock. I can't assure you that I'll get to yours, but I will certainly make every attempt to do so, as long as the stock meets the following criteria.

1. The average daily trading volume needs to exceed 250,000 shares. If a stock trades too thinly, chart analysis doesn't help much, because there just are not that many traders involved. One big buy or sell order can move the stock in ways that chart analysis just cannot predict. So let's stay above 250,000 daily shares.

2. The stock really needs to be trading above $5. Sub-$5 stocks don't get the same treatment by institutions and portfolio managers. Also, many traders set their trading screens to ignore stocks below $5 just to cut down on their trading candidates. While I'm sure your favorite penny stock is the next undiscovered gem, I'm not in the business of breaking news stories ... so once your gem is discovered, let me know, and I'll take a look at the chart.

3. Make sure you check my recent "3 Stocks" videos. I don't want to be too redundant, so if I've recently covered a stock in video format, I won't repeat it here.

3 Stocks I Saw on TV

Hopefully, you've noticed that I alternate between daily and weekly bars in the charts. It's important to understand the underlying rationale for choosing one time frame over another. I differentiate between these time frames in pretty simple terms.

The longer time frame -- the weekly bar chart -- is my "decision" time frame. I want to remain in phase with the trend, and I use the weekly bar chart to identify the trend. So I'll feature a weekly chart when I want to emphasize a certain aspect of the prevailing trend -- not a specific buy or sell point. This weekly chart is the time frame in which I make my decision: Do I want to buy or sell the stock?

The daily chart is my "action" time frame. Once a decision is made on the basis of the weekly time frame, then we zoom in on the daily chart to choose that level at which action is taken. The daily time frame is my preferred frame of reference for actually implementing the decisions I've made on the weekly chart.

In your own analysis, make sure you are using different time frames for different things; otherwise your actions will largely be a function of your emotions.

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Manitowoc has been bouncing along the 50-day moving average since July, with each pullback ultimately rewarding those who bought. With MTW now sitting more than 10% above the optimum buy point, do we just stand pat and play the waiting game, hoping for a pullback? Not necessarily. Instead, have an alternative strategy of buying on a breakout above resistance. If MTW pops above the downtrending resistance line, I'd be a buyer. After all, stocks typically do not behave exactly as you'd like them to, so don't be left waiting with your cash in your hand.

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This weekly chart shows a series of higher lows since Applied Materials bottomed last November. Over the past year, each pullback has been bought at successively higher levels. But don't get too complacent with this stock. The recent pullback began in August, and volume has been generally moving higher. That signifies bona fide distribution rather than just your garden-variety profit-taking. So wait for either a pullback to support at $12 or a decisive breakout above $13.40 before buying. The former scenario allows you to buy very close to support, thereby minimizing your risk. The latter scenario effectively flashes the "all-clear" signal and indicates higher prices are coming.

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This weekly chart of SanDisk shows a fairly reliable pattern of establishing a low at the middle Bollinger band (i.e., the 20-week moving average), and then a rally up to the upper Bollinger band that results in some sideways consolidation. At present, the stock is close to establishing a new low near the 20-week moving average. I'm looking for a breakout above the downtrending resistance line to indicate that the next leg up is beginning. Until then, I'm a "vigilant bull."

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ATP Oil & Gas is really at a tipping point. First, you can see the "double top" formed by the twin peaks at $22 in September and October. Further, the October high was accompanied by a markedly lower RSI reading -- a bearish negative divergence. That leads us to the present condition of the stock, where the past few pullbacks have successfully tested $16 as support. I'd be very careful about buying right now. There's nothing wrong with buying at support, but you've got to exercise some discipline and make sure to use a protective stop just below that level.

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Since July 1, the iShares MSCI Emerging Markets ETF has advanced about 30%, more than the S&P 500, thus confirming the obvious: Investment ideas need not be confined by our increasingly porous borders. Instead, consider putting some of your money into emerging markets via the EEM. This ETF is looking a bit tired as it struggles to push above $42. I'd be a bit patient and wait for the next pullback to $40. That's about 5% below current levels. I don't know about you, but I think an entry improvement of 5% is worth waiting for.

Be careful out there.

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At the time of publication, Fitzpatrick had no positions in the stocks mentioned, though positions may change at any time.

Dan Fitzpatrick is the publisher of StockMarketMentor.com, an advisory newsletter and educational forum dedicated to teaching effective risk management and trading methodologies to aspiring traders and investors. He is a former hedge fund manager and a member of the Market Technicians Association, and he now trades from his home in San Diego, Calif. While Fitzpatrick holds various securities licenses, he does not give recommendations to buy or sell stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He appreciates your feedback; click here to send him an email.