Countrywide Preps for a Test

This column was originally published on RealMoney on March 14 at 11 a.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

I received a lot of comments about Tuesday's article on longer time frames. I understand that a lot of folks tend to be fixated on the daily charts. And I think the main reason is that the daily time frame is the default on most software programs and Web-based charting services. Also, we tend to think in days, not weeks or months. When is the last time you've told some to "Have a nice week"? That never happens -- it's always, "Have a nice day!"

One of the emails I received was from a very thoughtful trader, L.M., who said:

"Just a note to say I found your column today using weekly/monthly charts very useful. I have found I have to use these longer charts because daily charts make me get too emotional about the stock moves, and I trade in and out too much. This means I can sit on my hands for weeks at a time then do a flurry of buying; but emotionally, I am better suited to dip buying than trending "buy high, sell higher" stocks. The latter is a skill I will have to learn sometime, but for now, I will stick to what I know."

L.M. made a very good point about the benefit she gets from the weekly charts. Rather than simply using them for trend analysis, she also uses them as noise filters. The harsh gyrations of daily charts can be great for nimble, short-term traders. But if that's not your game, then the daily charts can easily cause you to become distracted, confused ... and emotional.

There are an infinite number of ways to trade, but they all boil down to the same thing -- sell higher than you buy, and buy lower than you sell. Everything else is just timing.

Let's get to some reader requests.

This monthly chart of Countrywide Financial (CFC Quote) shows a stock that has been either forming a multiyear top or consolidating before the next leg higher. I vote for the former scenario, but the verdict won't be in until a test of $30. And if that multiyear support level breaks down, the stock could become a teenager pretty fast.

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UnitedHealth Group (UNH Quote) has been trending higher over the last year or so, but really isn't at a buy or sell point right now. With the stock in the middle of the channel, it's just not where I'd be a buyer. But the uptrend gives me a bullish bias, so I'd wait for a pullback to support. Then I'd buy.

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ViroPharma (VPHM Quote) had been trending higher for five months. But this latest pullback fell far below the normal support level of the 50-day moving average. That indicates a trend reversal. I've outlined the bearish flag pattern around $15. I'd be a seller if the stock falls out of that pattern.

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Each time Vasco Data Security (VDSI Quote) has pulled back to tag the 50-day moving average, the bulls have come for the stock. The stock is not quite down to the buy point yet, but it's close. I'd look for a pullback to around $16 before buying. Then I'd keep a stop just below the 50-day moving average.

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This daily chart of Ultra Clean Holdings (UCTT Quote) shows the stock right at the top of its channel. Sure, the last four days of sideways action could be setting up for a move higher -- but the more likely scenario is a pullback into the channel. With the 50-day moving average down around $15, that's where I'd look to buy.

Be careful out there.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Ultra Clean Holdings 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.