Fitz Bits: Nike Is Off to the Races

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

• Nike (NKE - commentary - Cramer's Take)
• Dick's Sporting Goods (DKS - commentary - Cramer's Take)
• iShares Financial (IYF - commentary - Cramer's Take) ETF
• Wachovia (WB - commentary - Cramer's Take)
• Inverness (IMA - 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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Yesterday, I spent my day just hanging around a municipal golf course in San Diego, Torrey Pines, to be exact. I was working as a golf marshal at the U.S. Open and had one of the best seats in town -- right behind the 18th green between a couple of photographers. I saw it all, and will see it again today, because I'll be back for the playoff between Tiger Woods and Rocco Mediate.

In light of my weekend, I figured I'd look at one of Tiger's favorite stocks -- Nike! You'll notice that the stock has been trading in a very tight range since mid-March. During that time, the 50-day moving average has gradually climbed to its present level, right at support. While I'd look to buy on a breakout, I'd rather buy closer to the 50-day moving average so I could use a tighter protective stop. But either way, NKE looks like a winner to me.

As for Tiger vs. Rocco today? They're both winners in my book.

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On the flip side is Dick's Sporting Goods. This weekly chart shows how the stock had been in an uptrend until late 2007. After peaking at around $36, the stock began making a series of lower highs and lower lows. At the same time, the 200-day moving average rolled over and transitioned from being a source of support to a source of resistance. While the stock is oversold, I'd avoid doing anything now. And if the bulls can push it back up to around $26 or $27, I'd look to short it.

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The iShares Financial ETF has retraced almost the entire March-to-May advance and has reached an oversold level that's in desperate need of a relief rally. But I'd avoid buying this bounce. Instead, I'd watch the bulls and look to sell or short as soon as the rally stalls. And if this ETF falls below the March low, I'd definitely close out any long position.

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Wachovia is down at an extreme price below the 50-day moving average. When prices get to such an extreme low, the next likely move is to the upside. But I don't think this is a rally that should be bought. Instead, I'd wait for the stock to move closer to the 50-day moving average and then get short. After all, that's the trade that has worked four times in the past five months.

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Inverness suffered one heck of a selloff before bottoming out in March. Since then, the stock has been working on reversing that downtrend and is now catching some bids from the 50-day moving average. Over the past couple of weeks, the stock has been consolidating near prior resistance. I'd be patient and wait until the bulls muster the strength to push the stock up above $38 ... then I'd buy.

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.