Volatility Squeezes Call for a Brave Heart

Over on Stockpickr, someone asked about my prognosis for the S&P 500. You can see my full answer over there, but the reader was really interested in knowing whether I agreed with another technician's call for the S&P to fall to 1325. That's a difficult question to answer, but I'll do my best.

I have a hard time making prognostications without specifying some kind of time frame. In my trading world, time is money, so a prediction that the S&P will fall to 1325 is not helpful unless I know how long my money would be committed to that move. And it doesn't make much sense to pay attention to something if you aren't willing to put your money on it.

So how long would I have to be short the S&P (or out of the market) before that downside price target was hit? Also, where is the S&P going between now and then? Is it first going to run up 20% to 1800, and then suffer a 25% decline to reach the 1325 target?

I don't know the answers, but I'm sure as heck going to ask those questions before I commit to a long-term market outlook.

Thursday I'll look at this subject in a little more depth and compare the basic differences between fundamental analysis, economic analysis and technical analysis.

Meanwhile, let's get to some reader requests: Presstek (PRST - commentary - Cramer's Take), Titanium Metals (TIE - commentary - Cramer's Take), Amerigon (ARGN - commentary - Cramer's Take), Teva Pharmaceuticals (TEVA - commentary - Cramer's Take) and Tam (TAM - commentary - Cramer's Take).

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I mentioned Presstek the other day when the stock broke above $6.40 on a volatility squeeze. I received several questions about the stock from readers asking how to find this type of trading opportunity. Frankly, it's fairly simple, though not for the faint of heart.

Look for stocks that are trading in a very tight range. There are many ways to find them, but I use Bollinger Bandwidth to find these opportunities because of the time I spent working for John several years ago.

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At the time of publication, Fitzpatrick had no positions in any of the stocks mentioned in this column, 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.