Fitz Bits: Dow Support? 7500

Today we'll look at some reader requests:

• The Dow Jones Industrial Average
• Potash (POT - commentary - Cramer's Take)
• Manitowoc (MWC - commentary - Cramer's Take)
• Flowers Industries (FLO - commentary - Cramer's Take)
• Wynn Resorts (WYNN - 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.

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.

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This monthly chart of the Dow Jones Industrial Average shows where the next viable support level is -- down around 7500. Will the Dow fall that low? I couldn't say, but I'll tell you this: If it does tag that level, I'll be buying. And until that happens, I'll be very suspicious of any rally and will believe it to be only a bear-market rally. That is, something fleeting and not to be relied upon for more than a trade.

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I mentioned Potash on Tuesday morning's "3 Stocks I Saw on TV" video -- only it wasn't on TV. It was a stock that I thought should have been on TV. I still like this as a long trade and sense that we've seen a significant low in the stock. But the next test is the early-October gap. If the bulls push the stock up to the bottom of that gap, I'd look to take profits. And I'd also use a trailing stop along the way.

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Manitowoc is in a steep downtrend and is far below the 40-day moving average. Could this be the bottom? Well, we see that the money flow oscillator is trending higher while the price continues lower -- that's a positive divergence. If you're a MTW bull, try keeping a very tight stop. No sense losing your dough if this turns out to be a falling knife looking for a floor.

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Notice how Flowers Industries has been making lower highs over the past couple of months, while also making higher lows? After the wide range of the stock back in August, I think it's time for a rest. I'd only be buying on a pullback to around $28, and I'd also keep a tight stop around $27.50. Money flow remains bullish, but you don't trade secondary indicators -- you trade the price action.

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Wynn Resorts has been rolling craps since last October. After peaking near $170, the stock is now down to $60 -- that's what I call a run of bad luck! But with WYNN now down at a significant low, maybe this is the bottom. Or not!

Given this economy, I'm pretty suspicious of gaming stocks -- nobody really feels like playing games when simply leaving your money in your bank feels like gambling. So any long should be for a trade, with a stop below $56.50.

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.