Fitz Bits: Google Is Too Risky for Me

Today we'll look at some reader requests:

• Google (GOOG - commentary - Cramer's Take)
• Broadcom (BRCM - commentary - Cramer's Take)
• Qualcomm (QCOM - commentary - Cramer's Take)
• UnitedHealth (UNH - commentary - Cramer's Take)
• A-Power Energy Generation (APWR - 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 timeframes for different things, otherwise your actions will largely be a function of your emotions.

Google is due to announce earnings on Thursday. It's anyone's guess whether the market will react positively or negatively to the numbers. I'd like to give the impression that I've got a valid opinion on the fundamentals, but I only know this: The only folks out there talking about a strong economy are the ones with the biggest vested interest in a strong economy. And they're all liars. (Wanna know how I really feel?)

With a weakening economy, it's tough to know how Google's earnings are going to be enough to push the stock above its current trading range. That's why I'd set a pretty high bar on a buy point and require the move to take out almost all the folks who have been holding this stock for the past few months. They are in pain, and their pain needs to be eased. Until that happens, I'm on the sidelines.

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Broadcom made its move very quickly. It bounced off the bottom with the rest of the market in mid-March, but peaked about a month later. Since then, it's been marking time as profit-taking meets new buying. You can see the long volume-by-price bar at around $27-$28. This defines where most of the financial commitment lies.

If you're a BRCM bull, try waiting for a breakout above $29 on heavy volume ... and then put a stop back in congestion. And if you're holding on, just waiting for that breakout, then consider a stop just below the 50-day moving average. After all, there is a big difference between a "potential" breakout and a "pending" breakout. The former is a possibility; the latter is an inevitability. Nothing is that certain in this market!

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Qualcomm had been moving up in a well-defined uptrend until late June when the stock fell below $48. Since then, we've seen some support right around the 50-day moving average.

But this recent rally seems to have run out of steam right where you'd expect it to -- at the prior support line. This type of "throwback" move often marks the last chance to sell before the stock moves lower again. If you're long, consider taking some off the table. You'll probably be glad you did.

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I know that someone owns UnitedHealth -- but I sure don't know who it is, or how they are paying their mortgage. This stock just keeps going down ... and down ... and down. Even the gaps are downward!

On the bright side, we know the stock can only fall $22.18 more before there is no further downside risk. That's not a prediction -- that's a definition of risk. If you're intent on buying this pig, wait for the stock to start trading above the 10-day moving average for a few days. Then you'll know that there's enough lipstick on it to attract some bottom pickers.

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I've drawn support and resistance lines along what I think is the current trading range for A-Power Energy Generation Systems. This $10 range amounts to close to 50% of the price at support. Now that's volatile!

But in such a volatile environment, the entry and exit count for everything. If you're long, you missed the exit -- that was yesterday morning. But if you're looking to buy, you haven't missed your chance. I'd wait for a pullback to around $22 before pulling the trigger.

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.