Fitz Bitz: Too Late for Goldman

Today we're look at some reader requests:

• Goldman Sachs (GS - commentary - Cramer's Take)
• JPMorgan (JPM - commentary - Cramer's Take)
• General Electric (GE - commentary - Cramer's Take)
• Anadarko (APC - commentary - Cramer's Take)
• Ralcorp (RAH - 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 chart of Goldman Sachs is pretty simple. In two months, the stock lost two-thirds of its value, falling from $150 in mid-September to below $50 on Nov. 21. In light of all that persistent selling pressure, the stock was bound to rally. But now that the bulls have pushed the stock up about 60% from the low, it's too late to be buying Goldman Sachs. Sure, the stock could go higher, but the prevailing trend is down. And after five consecutive days of gains on declining volume, upside pressure is faltering. I'd sell now and look to buy the next dip.

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JPMorgan reversed in dramatic fashion on Friday, Nov. 21. Since that time, the stock has rallied along with the rest of the financial sector. But the fast money has been made by now, and the better trade is to take profits. While I don't have many inviolable rules of trading, one rule that has worked for me is pretty straightforward: "Don't buy a stock that's run from $20 to $30 in one week." I won't break that rule.

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GE is on everyone's radar screen, and this daily chart shows why. This over-owned stock rallied hard last week but is now right back up to the top of the downtrending channel. I know it's tempting to buy "now that the coast is clear" ... but the coast is not clear. There is still a lot of overhead resistance here, and the safer trade is to sell now and wait for evidence of a higher low.

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Energy continues to outperform, and Anadarko is right in the thick of things. But while the trend is higher, the stock is now testing the 50-day moving average. And even if the bulls can manage to break through resistance, the stock is likely to be so overbought that it becomes even more risky to buy. I'd rather sell now and wait for a return to test support. No one ever took a big loss by being too disciplined.

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Ralcorp makes store-brand consumer goods. You know - the same stuff that's in the name-brand containers ... only cheaper. This seems like a pretty good business to be in, because everyone is looking for a bargain. I'd be a buyer on any pullbacks to support. But you've got to be a trader here and sell at resistance!

Be careful out there.

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Know what you own: Fitzpatrick mentions Ralcorp. Other companies in the packaged-foods industry include Pepsi (PEP - commentary - Cramer's Take) and Unilever (UN - 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.