The Daily Chart: Not for Everyday Use
This column was originally published on RealMoney on April 21 at 1:00 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.
It's important to look at stocks in multiple time frames. For me, it's daily vs. weekly charts. The weekly chart is your reference for the trend. You need to understand whether the stock is moving up, down or sideways.
The weekly chart isn't actionable -- it doesn't provide entry or exit signals. However, analysis of the weekly chart enables you to know whether you should be buying, selling or passing on the stock.
Buy uptrending stocks, and sell/short downtrending stocks. I touched on this a bit in Thursday's column. In uptrending stocks that are tough to enter without feeling like you are chasing, wait for profit-taking.You'll see it on the weekly chart, but you should then switch to the daily chart to get a better feel for the price action. You want to have an idea when the dip might have run its course. That's when you buy.
The daily chart of MEMC Electronic Materials (WFR) shows that the key level is $40. The stock has run too far over the past week or so, from $35 up to $44. The prudent move is to wait for a pullback to around $40, where the stock broke out. The weekly chart of InfoSpace (INSP) shows a downtrending stock searching for a bottom. It has been firming up since October, and appears to be working on some higher highs and lows. I'd wait to see if the stock tests $25 again. If it does, I'd make a scaled entry. A subsequent move to around $22 would be a lower low, which would be my signal to take the loss. But a move higher would be sufficiently bullish to warrant buying more stock. American Reprographics (ARP) is in a prolonged volatility squeeze on the daily chart. Volume is a bit low now. Don't be fooled by the huge volume spike earlier this month -- that resulted from a huge secondary stock offering at $34.50. Until the stock moves above resistance, I wouldn't buy it. Be careful out there. P.S. from TheStreet.com Editor-in-Chief, Dave Morrow:
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