Fitz Bits: Will the Bulls Come Back to the Financials?

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

• Financial Select Sector SPDR (XLF - commentary - Cramer's Take)
• Visa (V - commentary - Cramer's Take)
• Cummins (CMI - commentary - Cramer's Take)
• Gerdau (GGB - commentary - Cramer's Take)
• ENSCO International (ESV - 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.

The Financial Select Sector SPDR (XLF - commentary - Cramer's Take) had been looking strong until a few days ago. During the downtrend, the 50-day moving average had defined resistance. But over the past month or so, it had defined support.

So this recent breakdown below that key average is a big turning point in the trend. The key question is what happens when the bulls come back. Will they be able to recapture the high ground, or will the 50-day moving average once again serve as resistance?

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Visa just hasn't been trading long enough to provide much reliable trading data. But over the past month, each pullback has been bought at around $80. As long as that pattern continues, I'd stay long. If Visa breaks below that level, I'd cut my card in half.

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Cummins is back to test resistance. No way I'd be a buyer now -- it's gone too far too fast. But any pullback to around $60 would take the stock very close to the 200-day moving average, which has been a good place to buy in the past.

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Gerdau has been in a strong uptrend. Holding these winners can be tough because of the constant fear of losing your profits. I'd try using the 10-day exponential moving average as a reference point for stops. If that moving average is broken, I'd start lightening up.

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Last week, Ensco International broke above April resistance. But Wednesday's action effectively reversed Tuesday's advance. After running almost 24% since the early May low, ESV needs a rest. I'd wait for a test of $70 before buying.

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.