Fitz Bits: Wide Range on Cliffs

Today we'll look at some reader requests:

• Cliffs Natural Resources (CLF - commentary - Cramer's Take)
• Scotts Miracle-Gro (SMG - commentary - Cramer's Take)
• Chicago Bridge & Iron (CBI - commentary - Cramer's Take)
• Philadelphia Gold & Silver Index
• UnitedHealth (UNH - 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 time frame 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.

---

Cliffs Natural Resources is at a price that's not quite actionable. The November low of around $14 establishes support, while the current price of around $17 is resistance. That's a wide range, and CLF is right at the top of that range. No way would I be shorting this steel stock now, but I'd only buy it if the bulls show that the current channel is too low or if the bears try to push the stock down to test the November low. But if I were already long, I'd stay that way -- with a tight stop.

---

Scotts Miracle-Gro has been trading higher in a well-defined channel for the past couple of months. Just yesterday the stock bounced off support before closing 6% higher. I think the path of least resistance remains upward, so I'd try to get some stock now with a buy order around $29 -- given the current volatility, you'd probably get filled.

---

Chicago Bridge & Iron sure looks like it has put in a bottom at $5. With the stock up 100% in less than a month, I'd still be a buyer. You can see the pattern setting up: a higher high last week, and a potentially higher low this week. If the stock falls below about $9.30, I'd sell. But absent that, I'd stay long.

---

During downtrends, a rising wedge (where higher highs and lows are converging) tends to be a continuation pattern. That is, the prevailing downtrend will reassert itself. But patterns are made to be broken, and this might be one of 'em. If the Philly Gold & Silver Index falls back to around 100, I'd be buying gold stocks. One option is to buy the Market Vectors Gold Miners (GDX - commentary - Cramer's Take) ETF, which trades in sync with the XAU.

---

UnitedHealth broke above established resistance on heavy volume. Since the move above $22, the stock has rallied another 20% and remains strong. I'd hesitate to buy it now except for a "starter position" with a plan to buy more if it pulls back to test the breakout. And if I were already long, I'd keep a stop just below support.

Be careful out there.

---

Know what you own: Fitzpatrick mentions gold. Other companies that may move in concert with the price of the commodity include the SPDR Gold Trust (GLD - commentary - Cramer's Take) and Barrick Gold (ABX - commentary - Cramer's Take).

---

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.