Fitz Bits: Wait on Silver Wheaton

Today we'll look at some reader requests:

• Silver Wheaton (SLW - commentary - Cramer's Take)
• SanDisk (SNDK - commentary - Cramer's Take)
• Sequemon (SQNM - commentary - Cramer's Take)
• Forest Laboratories (FRX - commentary - Cramer's Take)
• Valero (VLO - 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 time frame 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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Silver Wheaton put in a decisive double bottom back in October and November, but yesterday's high-volume intraday reversal marks a short-term top. After eight consecutive days of advances, the bulls could not close the deal. SLW closed near the bottom of the intraday range and is highly likely to rest for a while. If you're thinking of buying now, perhaps you should reconsider. Why let some greedy bulls out of their trade when you can wait for more of a pullback. It's OK to be bullish on silver, but don't be a dumb bull.

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SanDisk has just about completed an inverse head-and-shoulders pattern. If there is enough buying pressure to push this stock above $10, then we could see the bulls continue to fill the gap between $10 and $14. I'd be a buyer.

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Adam Feuerstein has been all over Sequenom lately, and it looks like the bulls are reading his stuff. But with the stock back to test a key resistance level, I wouldn't buy right now. Instead, I'd hope for one last pullback ... or a breakout above $21. Either way, I'd trade small and use a tight stop -- this is a very volatile stock.

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The bottoming process of Forest Laboratories is marked by the two crescendo lows from October and November. And with the stock now back above the 50-day moving average as well as established resistance, I'd stay long. FRX looks like a slow mover, but as long as it's moving up, I'd stay long.

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After trading in a wide channel since October, Valero is finally back above the 50-day moving average. But with a 50% move over the past couple of weeks, I wouldn't chase this one. Instead, I'd be patient and wait for a pullback. But then I'd buy.

Be careful out there.

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Know what you own: Fitzpatrick mentions SanDisk. Other companies in the semiconductor industry include Rambus (RMBS - commentary - Cramer's Take) and Micron (MU - commentary - Cramer's Take).

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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.