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Today we'll take a look at some reader requests:
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 timeframes for different things, otherwise your actions will largely be a function of your emotions.  I've highlighted the rising relative strength index (RSI) and declining price during the month of February to illustrate how a secondary indicator can provide an early signal of a trend reversal. Apple went into a volatility squeeze between mid-February and mid-March and has since broken out to the upside and surpassed the 50-day moving average. I think this is a buy on pullbacks. And since we are getting into the seasonally weak time for tech, I think we'll see a buyable pullback soon.  Canadian Solar has been in a trading range since mid-January, with support at around $17.50 and resistance at $23. The stock is now in the middle of that range. But yesterday's 20% move on volume about 150% of normal means something. I'm looking for CSIQ to break out of this range, though it will likely take a bit more work before that happens.  This weekly chart of Mosaic shows a negative divergence between the bullish price action and a bearish RSI. Notice how the pullbacks continue to find support at the middle Bollinger Band, while the most recent peak is not as extended as the early-January peak? Maybe I'm splitting hairs, but I'd be careful of MOS right now. Yes, it is at a great buy point, and if you like Mosaic -- the company -- then this is your opportunity to buy the ticker. But I'd suggest protecting it with a fairly tight stop.  Cal-Maine Foods has been anything but calm over the past year. The stock broke out above $7.50 during late 2006 and has recently tagged $40. The best buy points have been on pullbacks to the support trend line I've drawn. Unfortunately, the stock just doesn't pull back that often. Still, picture the probable price action in this stock in the coming weeks. Can you envision it running up to $50 without any kind of break? Can you envision it taking a rest for a while -- perhaps pulling back in consolidation? My bet is the latter scenario. As strong as this stock looks, I'd avoid buying it until it provides a better entry.  Something's going on with Manitowoc. Notice how the stock had been bouncing along the 30-week moving average during late 2006 and all of 2007. But the stock got a 40% haircut between late December and mid-January. Now, the bulls are marking up the stock but are unable to move it above the 30-week moving average. So support has now become resistance. Until that changes, I'd stand aside.  The UltraShort S&P500 ProShares ETF has been a favorite of the bears because it effectively gives you 2-to-1 margin on an S&P short position without paying interest. But this ETF sure looks like it's topped out to me. Also, the 50-day moving average is now back above the current price. That's bearish. But before you go counting the SDS out and ratcheting into the Ultra S&P500 ProShares (SSO - commentary - Cramer's Take) ETF (the opposite of the SDS), consider the $60 level. Each time the SDS has pulled back to that level, the decline has stopped and we've seen a rally. I'd consider buying the SDS if it moves back above the 50-day moving average. But I'd also have a tight stop in place just below $60. Be careful out there.
At the time of publication, Fitzpatrick was long Apple and Canadian Solar, 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.
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