Fitz Bits: Ford's Path Higher Is Clear

Today we'll look at some reader requests:

• Ford (F - commentary - Cramer's Take)
• Axsys Technologies (AXYS - commentary - Cramer's Take)
• Gardner Denver (GDI - commentary - Cramer's Take)
• Hill International (HIL - commentary - Cramer's Take)
• Socieded Quimica y Minera (SQM - 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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Everybody who bought Ford during the last couple of months is a winner, so resistance isn't much of a factor now. That leaves room for buying pressure to push the stock higher without having to deal with the "I just want my money back and I'll never trade again" crowd of unhappy bulls.

If you're long, I'd suggest keeping a stop a bit below the 50-day moving average to preserve those gains. And if you're thinking about buying, try waiting for a breakout above $3. There isn't much resistance between $3 and $4, and a $1 move on a $3 stock makes a darned good trade.

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This weekly chart of Axsys Technologies illustrates the power of a volatility squeeze. After trading in a very narrow range in early 2007, AXYS blew out of it and ran for the next 15 months. But you can see how that uptrend has now given way to consolidation.

While the daily chart looks pretty bullish, the weekly chart really tells the tale. Buying at the top of this $50-to-$75 range might lead to some great profits if the stock breaks out, but it might also lead to a big loss if the current resistance remains strong. I'd err on the side of caution and at least wait for a retest of the 40-week (200-day) moving average.

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Notice how Gardner Denver has been trading sideways over the last week or so rather than falling back to test the downtrending support line that connects three distinct lows since mid-October. If the bears could push GDI down to about $18, I'd be happy to buy. But maybe the selling is just about finished and the bulls will push the stock out of the pattern.

I'd consider buying just a little on a breakout above current resistance. And if the bulls prove that they can push the stock above the 50-day moving average, I'd probably add to that position. Oh, and if you're already long, consider keeping a stop just below current congestion.

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This daily chart of Hill International shows the same dynamic that we just saw in Gardner Denver. The stock printed a couple of meaningful lows in November, with the most recent one occurring on lighter volume. That's indicative of a decline in selling interest. Now the stock is trading in a tight range, but it's above the 20-day moving average. That's a bullish development that merits attention. I'd probably buy on a move back above $5.75 on heavy volume, but I'd sell if the current congestion doesn't hold up.

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In this daily chart of Sociedad Quimica y Minera (SQM), we see another situation where the stock bottomed a while ago and is now consolidating noticeably higher than those prior lows. I've highlighted the volume that accompanied those October lows.

The most recent low occurred on lighter volume, thereby indicating that much of the selling has already occurred. But the 50-day moving average continues to cap the stock price, and I'd wait for that to change before buying.

Be careful out there.

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Know what you own: Fitzpatrick mentions Ford. Other companies in the auto industry include GM (GM - commentary - Cramer's Take) and Toyota (TM - commentary - Cramer's Take).

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Please note that due to factors including low market capitalization and/or insufficient public float, we consider Hill International to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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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.