Fitz Bits: Patriot Coal Is Marching Ahead

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

• Patriot Coal (PCX - commentary - Cramer's Take)
• Plains Exploration & Production (PXP - commentary - Cramer's Take)
• Western Digital (WDC - commentary - Cramer's Take)
• CSX (CSX - commentary - Cramer's Take)
• Atlas Energy (ATN - 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.

---

Patriot Coal has been on a tear since bouncing off the 50-day moving average last March. With the stock up about 400% since then, this is a very tough stock to buy. Do you buy it now, only to risk the stock topping out precisely five seconds after you bought it? Do you sit on the sidelines and let the stock go to $200 without you?

Here's what I'd do. I'd be a bit patient and wait for a pullback to the eight-day moving average, which has defined support on the last several pullbacks. That's when I'd buy, but I'd also keep a tight stop on the trade.

---

Plains Exploration & Production has been struggling to break through $77 for the past month, but yesterday's close just might have done the trick. The challenge here is that the stock could fall through support and trigger a stop only to bounce at the 50-day moving average and move higher without you. So I'd trade small right now, and keep a looser stop.

---

Western Digital had been moving higher since running away from the 50-day moving average, but that move took a rest last week, and the stock pulled back on fairly light volume. Yesterday's pop above resistance is a positive development for the bulls, but the most meaningful resistance lies just overhead at around $40. Until the bulls can clear that level, I'd stay away.

---

The railroads have been stellar performers ... until the past couple of weeks. CSX has now fallen clear back to the 50-day moving average (and if you want to see what a real breakdown looks like, check out Burlington Northern (BNI - commentary - Cramer's Take)). If the bulls don't start buying this stock right here and right now, I'd take profits and move on.

---

Atlas Energy is still making a series of higher highs and lows, but the most recent low is below the key 50-day moving average. After the kind of move we've seen since the February low, this pullback could mark the beginning of the end -- or not! I'd draw a line in the sand just below the June low. If it breaks down below that level, then Atlas has dropped the ball and I'd bail.

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.