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Today we'll look at some reader requests:
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.
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.  Cisco is starting to look a bit ominous. The recent lower high did not occur much above the 50-day moving average, which is a sign of waning momentum. The last three lows have occurred right around $22.50. So with support clearly defined, I wouldn't overthink this: Any close below $22.50 puts this in the "sell" column.  J.Crew has nearly doubled since June, but excess supply at $44 is keeping the bulls penned in -- for now. Any move above $44 is a buy signal that could lead to a pretty big move as those who sold rush to undo their mistake. But the most interesting aspects of this daily chart are the three volume spikes in August, October and November. Each spike accompanied a dramatic price advance. But the August and October spikes were not exhaustion moves -- instead, they were signs of strength that ultimately led to higher prices. I'd be looking to buy on any weakness.  Regional bank BB&T is under persistent distribution after peaking in mid-September. I've identified current short-term resistance and support. With a trading range of just $1.50, this stock doesn't offer much upside potential as either a short or a long. If the stock falls below $24, I'd be a seller. But keep an eye on the long volume-by-price bar at the $22 level -- that indicates substantial financial and emotional commitment at that level. As such, you'd expect some buying to occur at that level. But would you really want to hold a stock for a 10% loss before even testing support? I wouldn't.  The lower high in November gives this daily chart of Newfield Exploration the look of a bearish head-and-shoulder pattern. The neckline is right at $40, which makes this an easy trade to manage -- any breakdown below $40 sets up a sell. But don't jump the gun. Until proven otherwise, $40 is where the buyers are. It's unwise to stand against the bulls when you don't know how eager they are to buy. Custer charged over the hill without knowing how many Indians were on the other side, and that didn't work out so well for him.  Total remains in an established uptrend within clearly defined highs and lows. While volume has been declining, Friday's trading action was telling: The stock gapped down substantially, and the bulls soaked up all the supply they could get. That effectively establishes $61.50 as support. If TOT falls below that level, then I'd consider the uptrend in doubt. Otherwise, I'd stay long. Be careful out there.
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. Brokerage Partners
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