Fitz Bits: Vale Ready for a Rest

Today we'll look at some reader requests:

• Broadcom (BRCM - commentary - Trade Now)
• Vale (VALE - commentary - Trade Now)
• Agrium (AGU - commentary - Trade Now)
• ConocoPhillips (COP - commentary - Trade Now)
• Cameco (CCJ - commentary - Trade Now)

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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Broadcom is in a prolonged uptrend now, with each pullback to the 50-day moving average marking the low. But over the past month, the bulls have been unable to push Broadcom up above $31 on three different occasions. As such, I'd wait for that job to be complete before buying. And as support continues to rise, it becomes increasingly likely that the next rally is going to break through resistance. If you're already long, I'd consider a stop down below the 50-day moving average. So long as it is not hit, I'd stay long the stock.

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Vale has been on a tear lately and has finally reached a price at which it is far extended above the 50-day moving average. It takes a lot of buying pressure to push a stock so far above its average price, so Vale is ready for a rest. I'd use either an eight-day or 10-day exponential moving average as a reference for placing stops. If Vale falls below those key averages, I'd sell.

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Agrium broke out of an $8 channel yesterday on very heavy volume. If you're long, there's no particular reason to sell, though I would consider setting a tight stop on at least some of your position. I'd only sell it all, however, if the stock falls back into the channel. If that unhappy event occurs, then the breakout was more likely an exhaustion move, and you don't want to be long after that kind of pullback.

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Last Saturday in Columnist Conversation, I posted a link to a video explaining a bull flag pattern in ConocoPhillips, noting that the stock was poised for a breakout. Yesterday, we saw that breakout, and now we begin the measuring process. The idea is that the flag flies at half mast. Take the distance between the breakout level of around $47.30 and the recent peak at $52 and you get $4.70. Add that $4.70 to the top of the flag at $52 and you get $56.70 as a price target. Once that target is hit, I'd start taking some off the table. Until then, I'd stay long.

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Cameco is a uranium stock that is very close to breaking out. For the past few months, the stock has been trading between $26 and $30, but this has changed during the past week. Notice how the most recent low is around $29? That's a higher low, albeit very short-term. If this tight range holds up for a bit longer, however, then any buying pressure just could be sufficient to push Cameco out of the range and into a new uptrend. I'd watch for a higher close on heavier volume, then I'd buy.

Be careful out there.

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At the time of publication, Fitzpatrick was long Vale, 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.