Fitz Bits: Here Comes the SUN

Today we'll look at some reader requests:

• Sunoco (SUN - commentary - Cramer's Take)
• Frontline (FRO - commentary - Cramer's Take)
• QLogic (QLGC - commentary - Cramer's Take)
• Nvidia (NVDA - commentary - Cramer's Take)
• Canadian Natural Resources (CNQ - 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 time frames for different things, otherwise your actions will largely be a function of your emotions.

Sunoco had been struggling for the past year, but has recently perked up. Rather than bumping against the 50-day moving average on the way down, SUN is now bouncing off this key moving average. I'd be a buyer now, with a protective stop just below $40.

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Frontline had been in a really nice uptrend until July. At that time, this shipper made a lower high just a bit above the 50-day moving average ... and then sank below prior support -- the "neckline." The recent advance from $55 to $60 is a "throwback," which is a post-breakdown rally to test the neckline. This sets up a great shorting opportunity, with a tight buy-stop just above $60.

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QLogic had been in a volatility squeeze back in June before breaking down to $14. But that breakdown turned out to be false, and QLGC has advanced more than 40%. The easy money has been made on this move, and the stock is in consolidation.

If you're still long, try protecting your profits with a stop just below Wednesday's intraday low of $18.33. If QLGC falls below that, we could see a significant retracement of the July rally.

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Nvidia is just starting to fill the gap that was created in early July between $18 and $13.50. This stock has advanced significantly over the past week and is due for a rest. NVDA has pushed above the bottom of the gap and is now starting to fill it.

But even though that's a bullish development, I'd be careful about buying right now. Stocks rarely go straight up, and I doubt NVDA will be the exception to that rule. I'd rather wait for a bit of weakness before buying. But no matter where you buy, you should expect significant resistance up at $18 -- right where the stock broke down in early July.

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Canadian Natural Resources has retraced the entire April-May rally and is now starting to move higher. While Wednesday's wide-ranging advance broke the downtrending resistance line, the real test comes at $85. That's where the 50-day moving average is right now, and is also the level at which the stock bounced back in July before breaking down.

After a stock breaks below a level of support, that same level will often act as resistance on the next rally, as those who failed to sell decide to just close out their trade if they can get their money back. I'd suggest waiting for a while. My bet is that CNQ churns for a while at current levels. 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.