Fitz Bits: Wait for Google to Pass the Test

Today we'll look at some reader requests:

• Google (GOOG - commentary - Cramer's Take)
• Canadian Solar (CSIQ - commentary - Cramer's Take)
• Mechel Steel (MTL - commentary - Cramer's Take)
• ArcherDanielsMidland (ADM - commentary - Cramer's Take)
• Almost Family (AFAM - 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.

Google has been trending lower since May. I've circled the series of lower highs that are now confined by the 50-day moving average. If you're looking to buy this stock, then I'd first wait until it tests $460 ... and passes that test with a bounce off prior support.

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Canadian Solar rallied back to test a prior support level, only to pull back on light volume. We can trade this two ways. First, if the bulls push the stock back above $32.50, it's a good buy signal with a stop back at around $31. But if the stock remains in the current channel, then I'd wait for a pullback to around $26 or so. Then I'd buy with a stop just below $25.

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Mechel Steel sold off hard back in July when Putin decided to invade its income statement and seize some of the margin. But the stock has rebounded since then, but recently peaked at $27. While you might be tempted to buy this little pullback, remember that the last low was clear down at $17. That's a long, hard fall before you'd know whether you were wrong to buy ... or just too early. If you're buying now, then keep a tight stop and avoid that mess.

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ArcherDanielsMidland is trending lower in a well-defined channel. Do you feel lucky? Do you think that this little three-day pullback makes a great buying opportunity? While that might be the case, we've seen similar pullbacks from resistance since early July. I'd wait for the channel to break -- then I'd buy.

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Almost Family has made an impressive run since April, almost tripling in price. But all good things must end, and it's looking like the easy money has been made. The current consolidation is occurring so far above the 50-day moving average that the bulls will have trouble pushing the stock higher. I think the same trade is to stand aside and wait for the next pullback to the 50-day moving average.

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.