Fits Bits: Get on Board With Diana Shipping

Editor's note: A column from Feb. 6, 2008, by Dan Fitzpatrick was mistakenly posted this afternoon as today's entry. The following text for today is correct. We regret the error.

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

• Diana Shipping (DSX - commentary - Cramer's Take)
• streetTRACKS Gold ETF (GLD - commentary - Cramer's Take)
• Petroleo Brasileiro (PBR - commentary - Cramer's Take)
• Pride International (PDE - commentary - Cramer's Take)
• PetSmart (PETM - 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.

Diana Shipping established a bottom in January along with so many other stocks. But since then, the stock has advanced more than 50%. This latest breakout above resistance is bullish, but I'd still protect the downside with a stop just below $30.

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I've circled the last six highs and lows to point something out -- this stock is trending lower. Sure, at some point the downtrend will end. But there is no sign of it yet. So all this talk about gold bottoming out really seems to be about nothing more than an oversold bounce. It'll take a series of higher highs and lows before I'll change my mind.

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I've drawn a line across the tops of the last three peaks on Petroleo Brasileiro to define resistance. And with the most recent bounce occurring right around the 50-day moving average, I'd look at that level as support. So we've got about a $17 range, and the stock is about $11 above support. That's not the greatest risk/reward profile. I'd rather wait until the next pullback before buying.

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Pride International has been on a tear since breaking above the February high; but these past couple of weeks have seen some consolidation of the uptrend. With the mid-April breakout recently tested by the pullback to $40, I think PDE is poised to move higher. But I'd still keep a stop just below the recent intraday low. If the stock falls that low again, then this breakout is really just a fakeout.

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PetSmart has been in a downtrend since September of last year, but from the looks of the last month of trading, I'd say that March marks the low. During April, the stock mostly traded sideways, leading to a breakout from a volatility squeeze in late April. Over the past few days, PETM has fallen back to test the breakout level. As long as the prior resistance of $22 holds as support, I'd stay long.

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.