Fitz Bits: Double Bottom in BP?

Today we'll look at some reader requests:

• BP (BP - commentary - Cramer's Take)
• ExxonMobil (XOM - commentary - Cramer's Take)
• Archer Daniels Midland (ADM - commentary - Cramer's Take)
• Northrop Grumman (NOC - commentary - Cramer's Take)
• Graham Corp. (GHM - 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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BP formed a short-term double bottom in October and is now establishing resistance around $50. A move above that level marks newfound buying strength. But even then, I'd hesitate to buy. Instead, I'd rather wait for the next pullback after the breakout. Better safe than broke!

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ExxonMobil is still struggling to get above the 50-day moving average despite strong accumulation over the past month or so. But after such a dramatic bottom in early October, it sure looks as if the bulls are starting to make a run. If the current resistance line begins to act as support on pullbacks, I'd start looking to buy XOM.

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Archer Daniels Midland is finally back above the 50-day moving average after bottoming out in early October. Notice how the 50-day moving average has flattened and is just starting to move higher? In this nasty market, an uptrending moving average is a rarity. Buying at the top of a trading range isn't my idea of how to make money, but I'd look to buy on any pullback to around $20 or $21.

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Northrop Grumman has been grinding higher in a series of higher highs and higher lows. However, the prevailing trend is down, and such consolidation patterns tend to resolve in favor of the prevailing trend. If you're looking to buy this latest pullback, keep a very tight stop. And if NOC does move higher, I'd suggest taking profits around $50.

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Graham Corp. is far below the 50-day moving average and ripe for an oversold bounce, but if the bulls do manage to push the stock back to another lower high, I'd use that opportunity to sell. In this nasty market, you've got to respect the downtrend. And this downtrend merits respect!

Be careful out there.

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Know What You Own: Fitzpatrick mentioned ExxonMobil and BP. Other oil companies include Chevron (CVX - commentary - Cramer's Take) and Shell (RDS.A - commentary - Cramer's Take).

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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.