Fitz Bits: Steel Yourself for Downside in X

Today we'll look at some reader requests:

• U.S. Steel (X - commentary - Trade Now)
• Bristol Myers Squibb (BMY - commentary - Trade Now)
• Manitowoc (MTW - commentary - Trade Now)
• ATP Oil & Gas (ATPG - commentary - Trade Now)
• Blackstone (BX - 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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Today's five stocks look pretty risky:

U.S. Steel has run from $17.50 up to $50 in seven months, but the last three peaks suggest a bearish head-and-shoulder reversal pattern with support around $40. The $10 difference between the $40 support and the top of the head (at $50) gives us a downside target of $30. (How do we get that? We subtract that $10 difference from the $40 neckline.) And it just so happens that X found support at $30 back in early July. That's where I'd buy.

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Bristol Myers Squibb had been in a pretty dependable uptrend until breaking down below the 50-day moving average. While it looked as if the stock would hold at $22, Friday's weakness really crushed the bulls. I'd love to buy BMY down at $20, but that's nearly 10% below current levels. As such, I'd just stand aside for now.

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Manitowoc has been on a real tear since breaking out of a volatility squeeze in early September. But the recent break below $10 puts the uptrend in doubt. While I'd be a buyer on any sign of strength -- for a trade -- I'd also keep a tight protective stop.

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ATP Oil & Gas has failed twice on tags of the $22 resistance level. The pullback to $16 in early October establishes current support. But over the past three days, ATPG has been pretty weak, albeit above current support. If the 50-day moving average breaks down, though, I'd consider that double top to be complete, and I wouldn't want to stick around as the stock seeks new support.

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Blackstone had been grinding higher in a wide-swinging series of higher highs and lows, but the recent break of the 50-day moving average -- and the bulls' inability to correct that breakdown -- puts BX on my "sell list." If you're long, keep a stop just below Wednesday's low.

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.