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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.  The Dow isn't giving me the warm fuzzies anymore. The March 18 rally was an obvious trend reversal. That was 10% lower than the 200-day moving average. Now the Dow has twice failed to push above this key moving average. That's bad. While I remain bullish about the Dow's longer-term trend (i.e., higher by year-end), a break below 12,800 is likely to put that move on hold for a while. I'd look for any pullback to find more support at around 12,400, which is where substantial trading volume has occurred.  Star Bulk Carriers was pretty illiquid ... until yesterday. With the stock trading more than 4 times average volume, the next few days will be critical. Was this a blowoff top, or the sign of higher prices to come? If you're long, why not just let the position ride until the trend line is broken. If it does break, the next logical support level is right at the last breakout point -- around $12.50.  Nordic American Tanker Shipping is another stock that had not been heavily traded until recently. As with SBLK, I'd just let this trend play out, with a tight stop just below support.  After breaking above resistance at $36, Woodward Governor peaked on high volume. But over the past couple of days, the stock has retraced a lot of that move. Keep an eye on how WGOV trades over the next couple of days. If it closes the gap and then breaks below the May high, we'll likely see a lot more sellers as they rush to protect their capital. But a bounce off $36 would reveal latent buying interest that's just waiting for a lower price.  While ReneSola has only been trading for a few months, the uptrend has established itself on increasing volume. Still, after rallying about 40% in May, SOL is due for a rest. But with just 4% of this stock held by institutions, there is more potential upside than you might otherwise think. So how do we balance greed with prudence? We start scaling out when the stock begins closing below the upper Bollinger Band. That's the first sign that the upward momentum is waning. 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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