Fitz Bits: Follow the Bulls on Nucor

Today we'll look at some reader requests:

• Nucor (NUE - commentary - Cramer's Take)
• Caterpillar (CAT - commentary - Cramer's Take)
• BP (BP - commentary - Cramer's Take)
• Reynolds American (RAI - commentary - Cramer's Take)
• Vornado Realty (VNO - 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.

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Over the past year, Nucor has been beaten up pretty convincingly, but the recent breakout above the 50-day moving average effectively reverses the downtrend. After multiple tests of $25, the bears have been unable to move the stock lower, and NUE is now controlled by the bulls. I'd keep a stop just below the breakout point.

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Caterpillar is another stock that's making a pretty convincing turnaround after establishing a dramatic double bottom in October and November. While current congestion is still right at the 50-day moving average, it seems that the path of least resistance is higher. I'd use this recent test of $40 as a buying opportunity. I'd keep a tight stop just below $40 ... and I'd see a breakout above $45 as vindication of the bullish reversal.

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Notice how each successive low is higher than the last in this daily chart of BP. At the same time, the accumulation-distribution line is very positive, showing persistent accumulation of this stock. I'd treat this pullback as a buying opportunity, with a stop just below $42.50.

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Reynolds American has tested $38 a total of four times since the first test in early October. Each time, buyers have snapped up the stock and pushed it higher. But the downtrend remains intact, with the 50-day moving average still defining the top of the trading range. I'd suggest watching for a breakout from the tight little bull flag pattern. If the stock rallies above the 50-day moving average on heavy volume, I think it's a good buy. But until that happens, I'd just stay on the sidelines and hope for yet another pullback to $38.

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Vornado Realty is once again up at the 50-day moving average ... and once again it has failed to hold above that key level. But if you're a believer that real estate has bottomed and that VNO is a buy, then the current pullback to support is your buying opportunity, with a stop right around $55.

Be careful out there.

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Know what you own: Fitzpatrick mentions BP. Other companies in the oil & gas industry include Chevron (CVX - commentary - Cramer's Take) and ExxonMobil (XOM - 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.