 |
|
|
|
|
||||||||||||||||||||||||||||||||||||||||||||
  RSS FEEDS |
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 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. Special note: In this volatile environment, you've got to time your entries with pinpoint accuracy. Don't just buy because a stock hits prior support. Instead, be a sniper and wait for evidence that the prior support level is actually holding -- don't be the first guy in. Plenty of brave soldiers on the front lines receive the Medal of Honor posthumously. Focus on capital preservation and profits -- let the other guys go after the medals.
AIG is a lottery ticket. This stock is completely driven by news, and I'd only be a buyer on a move back above $5 ... or a repeat test of $1.25. Buying anywhere in between exposes you to substantial risk because of the distance between support and resistance.
ArcherDanielsMidland has been in an established downtrend with an easily identifiable resistance line -- right at the 20-day moving average. Over the past couple of days, ADM has been firming up just a bit. But after last week's volatility, I think you've got to manage your risk rather than count the money you're going to make because the stock is breaking out. It hasn't broken out yet, and I wouldn't be surprised to see the bears push back and take the stock down to retest $20. That's when I'd look to buy.
Nike announced earnings last night, and the stock was up in after-hours trading. But the market is fickle, and anything could happen today. If you're long, just use a protective stop below support because the next support level would be down at the July low of around $55.
Potash ran back to the late-August high before pulling back to generate the current trading range -- between $160 and $180. If you love POT, then here's your buy point -- with a stop just below $160.
This weekly chart shows Honeywell on the "Don't Buy! Don't Buy!" list. The stock has been cut by 20% since falling below support in July and isn't showing any signs of bottoming. Don't try to catch the bottom here. Instead, wait for the sellers to finish and buy it when it starts moving higher. 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.
|
|||||||||||||||||||||||||||||||||||||||||||||||
| Subscribe to our RSS Feed |
© 1996- TheStreet.com, Inc. All rights reserved. |
PODCASTS
