Fitz Bits: Take Profits in TLT | Page 1 of 1 | Financial Articles and Blogs

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.

Last week the iShares 20+ Year Treasury Bond ETF unexpectedly ramped right through prior resistance and ran up to about $104. Now that was a decisive breakout -- almost 3 times average volume after a strong gap at the open. Well, Friday's strength in equities was accompanied by some weakness in the TLT. If you're still long this ETF, I'd suggest taking profits now. If it falls back to around $100 and you see other buyers coming in, then I'd consider buying some. But until then, hands off.

Has the Bank Index (BKX) bottomed? Well, looking at this daily chart has me getting a bit bullish -- at least for a countertrend rally. Notice how Friday's intraday trading extended well below 35, but then closed near the high of the day? That's a "hammer" -- as in, "hammering out a base." Now, this daily chart shows a lot of pain, as there are plenty of folks who would love to sell what they have on any market strength. So I'd look for any rally this week to stall out before it can break above 45. Place your bets.

I've done some admittedly imprecise calculations on this daily chart of Dow Chemical to get a sense of how it trades. You can see that the distance between the September breakdown and the October low is roughly $10. After rallying higher to $27.50, DOW quickly rolled over and has declined almost every day this month. So where is it now? About $10 from the early-November high. So we've got a $10 decline, a $5 advance, and another $10 decline, right? Well, assuming that Friday's intraday low holds up as support, what would I expect next? I'm looking for a $5 advance up to test $22.50. Now, is trading that easy? No! Absolutely not -- but this type of "rough guesstimate" helps me assess my risk/reward profile. With a stop just below Friday's intraday low, a countertrend rally just might be in the cards.

I've drawn a box between the current price and the 50-day moving average for Trinity. Notice how the stock is deeply extended below that key moving average? Well, remember what the S&P 500 did last Friday, when it rallied back from a deeply overextended decline. We could see TRN do the same thing. If you're short this stock, why not cover? And if you're long, don't become a "true believer" if the bulls start pushing the stock higher. Instead, just sell into that strength and put your money to work somewhere else, where there isn't so much pain associated with owning the stock.

Like so many financial stocks, the ProShares Ultra Financials ETF appears to have put in a short-term bottom on Friday. Notice the long "tail" -- a deep intraday selloff and recovery. Volume was quite high, and the close was near the top of the intraday range. The probable reason for Friday's reversal? The "stretched rubber band" condition that I referred to Thursday afternoon.

P.S. Will you be there when Cramer makes his next move?
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