Fitz Bits: Steer Clear of XLE

Today we'll take a look at some reader requests:

• Energy Sector SPDR (XLE - commentary - Cramer's Take)
• EMC (EMC - commentary - Cramer's Take)
• China Security & Surveillance (CSR - commentary - Cramer's Take)
• SunTrust Banks (STI - commentary - Cramer's Take)
• Colonial BancGroup (CNB - commentary - Cramer's Take)
• ManTech (MANT - 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.

3 Stocks I Saw On TV

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.

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I've circled the past several highs and lows in the Energy Sector SPDR. The green circles highlight the series of higher highs and lows, while the last two red circles show the break of that trend -- a lower low and lower high. While we all might be attached to the long energy trade, this chart makes that bias suspect.

I'd stay away from the XLE unless the bulls can push it back above $80. Sure, you'd miss some of the move by waiting, but the current environment favors protecting your capital ... not trying to catch every bottom.

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EMC has been in a steady slide for several months, and it just can't seem to find a bottom. In January and February, it seemed as if there was sufficient demand at $15 to halt the decline. But over the past few weeks, that demand has been satisfied and there is still more selling. I'd just stay away from this until it breaks back above the 50-day moving average.

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China Security & Surveillance is fairly thinly traded, averaging around a quarter of a million shares each day. But yesterday's breakout above the 50-day moving average was on double the average volume. After a 14% move yesterday, though, buying now is risky. I'd rather let this buying spree run its course and buy on a pullback.

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SunTrust Banks has been trending lower for quite a while, though the volatility has increased since January. With $54 as support, dip-buyers might find this attractive. As for me, I think there are better trades out there -- if only because you'll probably be able to buy STI at this price, or even lower, for quite a while.

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Colonial BancGroup has broken below prior support on above-average volume. The stock is in a downtrend and I just wouldn't be buying this stock now. The value might be compelling ... but just imagine how compelling that value will be when the stock trades in single digits.

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ManTech has been on a tear for the last week, and finally popped above resistance. If you're long, I'd suggest watching $46 carefully. Assuming prior resistance becomes current support, we should expect any dip to $46 to be met with buyers. If that doesn't happen, I'd sell.

Be careful out there.

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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.