Fitz Bits: RIMM Has Broken Out

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

• Research In Motion (RIMM - commentary - Cramer's Take)
• Dell (DELL - commentary - Cramer's Take)
• Chesapeake Energy (CHK - commentary - Cramer's Take)
• Avery Dennison (AVY - commentary - Cramer's Take) ETF
• Irwin Financial (IFC - 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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After really taking it on the chin in January, Research In Motion has now climbed all the way up past resistance. Now, volume could be a bit stronger, but I like the upside resolution of this bullish "flag" pattern that has formed over the past few weeks. I'd keep a stop right back around $115. If this breakout is for real, no way should that stop get hit.

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Dell has been trading in a pretty tight range for most of the year. Notice how the sideways action allowed the 50-day moving average enough time to fall down and drop right into the middle of the action? When this occurs, I start to think that a base is being formed. I'd be convinced that the stock is breaking out of that base if it moves above $21 on heavy volume. Until then, it's still rangebound.

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Chesapeake has been a crowd favorite for a while. The recent high-volume breakout above $50 is significant because that is precisely where the bulls faded back in March. But this is starting to become pretty volatile now, so I'd try keeping a looser stop than normal to allow for deep pullbacks. I'd use the 50-day moving average as my reference point, and keep a trailing stop just below that line.

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This daily chart of Avery Dennison looks a heck of a lot like the daily chart of Toll Brothers (TOL - commentary - Cramer's Take). Each time the bulls test prior resistance, they fail the test! So while the stock is now making higher lows, I'd still be a seller until it breaks decisively above resistance. What's "decisive"? You'll know it when you see it!

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Irwin Financial is a fairly thinly traded stock that is in a pervasive downtrend. Why? Check the second word in its name. Financials are still the red-headed stepchildren of Wall Street -- no offense to red-headed stepchildren -- and I'm still very leery of them. But if you like the volatility in this stock, then try waiting for a pullback to support before buying. Would I short this stock now? Uh ... no! With such a thinly traded stock, any big buyer will blow you right out of the water with a nasty short squeeze. Better to just buy Potash (POT - commentary - Cramer's Take) and be done with it.

Be careful out there.

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At the time of publication, Fitzpatrick was long Chesapeake Energy and Potash, 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.