Fitz Bits: Toyota May Have Run Out of Gas

After receiving several emails about various stocks in the heavy construction group, I've decided to feature five of them in today's column.

• Toyota (TM - commentary - Trade Now)
• Flowserve (FLS - commentary - Trade Now)
• IBM (IBM - commentary - Trade Now)
• Broadcom (BRCM - commentary - Trade Now)
• Marvell (MRVL - commentary - Trade Now)

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.

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.

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Toyota has been consolidating in a narrowing range over the past couple of months. But after the kind of run Toyota has had since March, the buying spree just could be over.

If the rising support line breaks down, then we're likely to see a lot more selling. If you're brave enough to own stock in an auto company, then at least be prudent enough to keep your position protected with a tight stop.

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Flowserve has been a crowd favorite for the past few months, but the latest rally lost steam pretty quickly. Yesterday's decline occurred on slightly heavier-than-average volume and that makes this a position to watch closely. Another close below $70 just could clear the way for more selling.

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This uptrending channel in IBM shows some real weakness over the past week or so. If the bulls aren't able to push the stock back into the channel, I'd close this position and move to the sidelines. Once the 50-day moving average is broken, we're likely to see more selling.

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This volatile pattern in Broadcom of higher highs and lows has rewarded the dip-buyers, but if you bought the latest tag of the 50-day moving average, you might be a little nervous now because Broadcom has been struggling.

Notice that the 50-day moving average is close to rolling over. In light of the 75% advance since late February, this trend could be close to ending. Watch for a lower low to mark the end of the trend -- and keep a stop down around $23.50.

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Marvell continues to advance in a series of higher highs and lows. The last week or so has proven tough slogging for the bulls, so there's a chance that demand is waning. Still, a pattern remains in place until it doesn't. I'd consider this pattern busted if Marvell closes below the 50-day moving average.

Be careful out there.

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Know What You Own: Other automakers include Honda (HMC - commentary - Trade Now) and Tata Motors (TATA - commentary - Trade Now). For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.

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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.