Fitz Bits: ALY May Be Losing Support

Today, we're going to look at the following stocks:

• Allis-Chalmers Energy (ALY - commentary - Cramer's Take)
• Chevron (CVX - commentary - Cramer's Take)
• Goldcorp (GG - commentary - Cramer's Take)
• Advantage Energy Income Fund (AAV - commentary - Cramer's Take)
• iShares MSCI Canada Index (EWC - commentary - Cramer's Take) ETF
• Morgan Stanley China A Share Fund (CAF - 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 Stocks I Saw On TV

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 timeframe over another. I differentiate between these timeframes in pretty simple terms.

The longer timeframe -- the weekly bar chart -- is my "decision" timeframe. 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" timeframe. Once a decision is made on the basis of the weekly timeframe, then we zoom in on the daily chart to choose that level at which action is taken. The daily timeframe 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 timeframes for different things, otherwise your actions will largely be a function of your emotions.

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This weekly chart shows the wide swath that Allis-Chalmers Energy has been cutting. Through a wide series of higher highs and lows, ALY has been in a multiyear uptrend. But over the past few months, the 70-week moving average has failed to define support. (Why the 70-week moving average, you ask? Because it works. It does a good job of defining the lows, so that's what I use for my frame of reference.) If the bears push the stock down below support (which is right around $15), then I'd be a big seller.

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This daily chart of Chevron shows a stock that needs a rest. Because of the run the bulls have enjoyed since the November low, I'd be patient here and wait for a pullback before buying. But whether you love or hate the oil industry, CVX will ultimately go higher.

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Goldcorp has been consolidating an impressive August-November run. I'd be a buyer on a pullback to $30 ... but I'd have my finger on the trigger. If support breaks down, I'd close out the position with a small loss.

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A reader wanted my take on Advantage Energy Income Fund, so I'm happy to oblige. The analysis is pretty simple: this stock is going lower. At some point the stock will bottom, but there is no telling when that happy day will arrive. Rather than face the unknown with nothing but an outstretched hand waiting to catch the knife, I'd just stand aside and let the decline run its course.

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The iShares MSCI Canada Index ETF is consolidating right in the middle of the August low and the November high. Until this consolidation gives way to a new trend, I'd step aside. But if you like EWC, then try at least waiting for a pullback to support before committing capital.

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Morgan Stanley China A Share Fund had been in an impressive uptrend until last October. At that point, the trend gradually rolled over and ultimately broke the uptrending support line that had defined the lows for most of this year. Now, we've got some prolonged consolidation, with no real clue of whether the uptrend will reassert itself. That's why I'd wait for a better (read: lower-risk) entry, such as a pullback to support. Then I'd buy because I could keep a tight stop on the trade.

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.