Fitz Bits: Eldorado on an Uphill Run

Today we'll look at some reader requests:

• Eldorado Gold (EGO - commentary - Cramer's Take)
• Southwestern Energy (SWN - commentary - Cramer's Take)
• Pfizer (PFE - commentary - Cramer's Take)
• Merck (MRK - commentary - Cramer's Take)
• Novartis (NVS - 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.

---

While some folks just do not see gold as a viable trade right now, instead preferring to treat hope as a trading strategy, there is sufficient interest in gold to push several of the mining stocks higher for big gains. Eldorado Gold is one of the gold stocks that I've been following for a while, so let's take a look.

Notice how the stock has transitioned from being a downtrending stock that would fail to clear the 50-day moving average to an uptrending stock that continues to stay above the 50-day moving average? I'd stay long EGO and use a 10-day exponential moving average as a reference point for a trailing stop. If the stock falls below the 10-day moving average, then this run is likely over, and you'd want to take profits.

---

Southwestern Energy has been a very volatile stock. And to cut through the noise, I'd suggest just following the 50-day moving average. Currently, it's trending lower. Respect the trend. If you're looking to buy SWN, then at least have the discipline to wait for the periodic selloff to around $22.50. If that level is hit, then your long entry can be protected with a stop just below established support.

---

Pfizer is another stock that has generally been trending lower. But the movement in December is bullish. Notice how the stock rallied above the 50-day moving average and has remained strong? That's a positive development, and it confirms the higher low we see from late November. And the last two weeks of churning is setting up a bullish breakout above established resistance. The prevailing trend of lower highs is still in place, so I'd suggest waiting for the breakout before buying.

---

Merck is another drug stock that is printing an ongoing series of lower highs and lows. However, the recent rally took the stock well above the 50-day moving average (which is now traveling upward) and is just now running out of steam. I'd treat the current pullback as a test for the bulls. If there is enough conviction to keep the stock above the 50-day moving average, then this is a good time to buy. But if the stock falls down below $28, you'd probably want to sell.

---

Novartis gapped up at the open yesterday but faded into the close. Still, the stock advanced almost 4% yesterday, and the new uptrend appears to be valid.

I'd consider two alternative trades here. First, a pullback to current support at around $47 would be the lowest-risk entry, with a stop just below support. Alternatively, an advance above current resistance clears the way for even higher prices. If that's your trade, then use a protective stop just below the breakout level.

Be careful out there!

---

At the time of publication, Fitzpatrick had no positions in 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.