Fitz Bits: A Bottom for Foster Wheeler?

Today we'll look at some reader requests:

• Foster Wheeler (FWLT - commentary - Cramer's Take)
• iShares Financial Sector ETF (IYF - commentary - Cramer's Take)
• Blue Coat Systems (BCSI - commentary - Cramer's Take)
• Cephalon (CEPH - commentary - Cramer's Take)
• Quality Systems (QSII - commentary - Cramer's Take)

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 timeframe 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.

Foster Wheeler just may be bottoming out here. While the stock is still in a downtrend, Wednesday's 4% move on increased volume is bullish. At the very least, we have a good definition of risk. The most obvious support is down at $45, the August low. But that's more than 10% below the current price level. If you're buying at this level, try putting a stop just below Tuesday's low of $47.50. At least that's a more acceptable risk.

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iShares Financial Sector ETF has been in congestion for about a month, grinding between $67.50 and $75. With the price currently so close to support, IYF is at a low-risk buy point now. But the problem is that the ceiling is pretty low -- $75. So buying at $70 gives us a $2.50 downside risk ... and a $5 upside reward. That's not enough reward to warrant risking $2.50. I'd be stubborn and wait for a pullback to $67.50 before buying. Oh, and if the IYF breaks below $67.50, I'd short!

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Blue Coat Systems gapped down last May and kept selling off until the stock hit $12. Since then, we've seen pretty frenzied buying, with each pullback being met with eager bulls. Last week's gap from $16 to $18 has set up a little congestion area. I'd be a buyer on a breakout and would look for the May gap to be filled. If the bulls can push it to $22, I'd take profits.

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Cephalon has been pretty volatile over the past several months, but has remained in a pretty reliable uptrend. But notice how the stock dropped steeply last June to tag the 50-day moving average? That was the best time to buy the stock. So is this a buy on a pullback to the 20-day moving average? Maybe ... but I'd rather wait for a deeper pullback. After all, the stock ran $12 since that last low. It's due for more of a pullback.

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Quality Systems had been struggling with $34 until early August. That's when this stock took off and has never looked back. It's always difficult to buy a stock that's run 30% in just a few weeks. I couldn't do it! But if I was long, I'd stay that way until the steep support line is broken. Then I'd take profits.

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.