Fitz Bits: Long AAPL, Short RIMM

Today we'll look at some reader requests:

• Research In Motion (RIMM - commentary - Cramer's Take)
• Apple (AAPL - commentary - Cramer's Take)
• Palm (PALM - commentary - Cramer's Take)
• iShares 20+ Year Treasury Bond (TLT - commentary - Cramer's Take) ETF
• J. Crew (JCG - 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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Two stocks that I've been following are Research In Motion and Apple. From the charts below, you'll see that these two competitors are trading quite differently. While both stocks are trending lower, AAPL is strong compared to RIMM.

Research In Motion had been printing a series of lower highs while establishing support at $40. But this pattern was broken yesterday on heavy volume. To add insult to injury, the broader market was strong. Simply put, RIMM was being sold while everything else was being bought. That sets up a short trade, with a buy-stop right about here.

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Notice how Apple continues to find support at around $85, and resistance at around $110? After yesterday's test of support and close right near short-term resistance, I'd look to buy AAPL on any further sign of strength, but with a protective stop below support. Why not use the November low as a reference point for stops? Because the bulls quickly rejected that move. But on any retest, I wouldn't look for aggressive buying the next time around.

One consideration for trading AAPL and RIMM is pretty simple. Go long AAPL and short RIMM. The idea is that a weak market will take RIMM down more than AAPL, giving you a profitable trade; and a strong market will take AAPL up more than RIMM -- again, giving you a profitable trade.

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Yesterday's intraday carnage just may mark the bottom for Palm. Trading volume is off the charts, and the intraday swing was dramatic -- a fall to $1.14 and a close 77% above that intraday low. So is it too late to buy? I don't think so. I'd like to see the stock pull back for a better entry, but yesterday was a significant technical development and likely cleared out all the losers. I'm a cautious bull right now.

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This weekly chart of the iShares 20+ Year Treasury Bond ETF (TLT) shows just how attractive Treasuries are now. When in doubt, invest in Uncle Sam. But notice how the volume has been on the decline for the past couple of days, even as TLT continues to rally. Also, the intraday trading range is declining. Those two factors signal an impending reversal. I'd take some off the table right now. And if this ETF closes below $107.50, I'd sell it all.

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J. Crew just might be putting in a bottom here. After a low in late November on slightly larger-than-average volume, the stock rallied and then had a huge-volume down day that still managed to close above $10. That just might mark the washout the bulls need to see. If you're a J. Crew fan, try putting a stop just below yesterday's low, and I'd look for any move above $12 to signal a turnaround. Until then, any long position is for a trade only.

Be careful out there.

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Please note that due to factors including low market capitalization and/or insufficient public float, we consider Palm to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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Know what you own: Fitzpatrick mentions J. Crew. Other companies in the retail industry include Urban Outfitters (URBN - commentary - Cramer's Take) and Macy's (M - commentary - Cramer's Take).

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At the time of publication, Fitzpatrick was short RIMM, 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.