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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.
AIG is moving up to the top of this channel. While the trend is hinting at higher prices, I'd be patient and wait for a pullback. In this volatile market, we'll probably get one soon.
While some parts of retail are struggling, others aren't -- as evidenced by the Retail Sector Select HOLDRs (RTH - commentary - Cramer's Take), which is poking above established resistance. Sometimes it pays to just follow the trend, even if you think folks aren't gonna spend.
The ProShares UltraShort Real Estate ETF (SRS - commentary - Cramer's Take) trades inversely to the Dow Jones Real Estate Index (consisting of commercial properties ... not the homebuilders). With the SRS falling back to October support, this could be just the time to buy this ETF. If you do, consider putting a stop about 3% below $80.
Lots of chit-chat about the dollar bottoming ... but from the looks of this chart, the process is ongoing. So far, I just see something that looks like a "hockey stick," with no sign that the dollar is breaking higher and thereby establishing the existence of a bottom. Now, perhaps next week's Fed meeting ("Please, Uncle Ben ... one more and no more.") will be the thing that pushes the dollar higher. But until that happens, all we've got is a possibility of a bottom.
Archer Daniels Midland (ADM - commentary - Cramer's Take) continues to trade in a fairly wide range. With the stock right at resistance, I'd be leery of buying until it is breached by a close above $47.50. Alternatively, a big pullback to around $40 presents a low-risk entry because of its proximity to established support. You can take the stock near $40, and then set a fairly tight stop to protect your capital.
Petroleo Brasileiro (PBR - commentary - Cramer's Take) peaked above resistance, but has now fallen back below $125. Still, this stock is loved, and while I think there could be another $10 of downside in the stock, I wouldn't recommend shorting such a volatile issue (which is a reversal of my last column on PBR, when I said just that). Instead, I'd be patient and wait for a pullback to the 50-day moving average -- then I'd buy. Be careful out there.
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.
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