Fitz Bits: GOOG Is Broken

Today we'll look at some reader requests:

• Google (GOOG - commentary - Cramer's Take)
• IntercontinentalExchange (ICE - commentary - Cramer's Take)
• Massey Energy (MEE - commentary - Cramer's Take)
• Agnico-Eagle Mines (AEM - commentary - Cramer's Take)
• Spartan Stores (SPTN - 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.

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.

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I've really zoomed out on this weekly chart of Google to show the transition from a great stock to a lousy one. Notice how the first low in 2008 was well below the last low. Notice how the high in mid-2008 was well below the late-2007 high. This sequence of a lower low and lower high set the stage for this recent breakdown below $400. I think it's probably too late to sell GOOG, but I'd be selling into any strength. This is a broken stock!

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I've boxed in the price action between $80 and $90 in IntercontinentalExchange because that's where the most trading has taken place over the past six months. Unless the bulls can push the stock above $90 (which is also above the 50-day moving average), I'd stay off the ICE.

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The current price of Massey Energy is so far below the 200-day moving average that it just begs for a snapback rally. But I'd wait for buyers to show up rather than anticipate it. After all, the weakest stocks fall the fastest ... and nobody telegraphs when the decline is going to end.

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Agnico-Eagle Mines has fallen back down to test support at $45. And pay attention here -- this is a daily chart! AEM lost one-third of its market cap since late September. If you've been waiting for the right time to buy AEM, this is it. However, I'm being cautious on gold -- the dollar is just too strong these days.

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Spartan Stores is a relatively illiquid stock that had been trading in a relatively tight range for the past couple of months. But last week the stock broke above $25 and looked like it was poised to move higher. Unfortunately, the only thing moving higher in this market is anxiety levels, so SPTN is now falling back to test the breakout. If you're long, I'd suggest selling on a break down below $25.

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.