Today we'll look at some reader requests:
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.
After the dramatic gap up in July,
Amgen has been churning in a very, very tight range. This type of volatility squeeze has two outcomes -- a big upside breakout, or a big downside breakdown. Wait for the move to start before choosing. That way, you've got a better chance of making the right move.
Waters Corp. is right in the middle of this uptrending trading channel. After bouncing off the 50-day moving average on Wednesday, yesterday saw an even bigger move higher. But there's one problem -- volume was anemic. That makes this move suspect, and I'd rather wait for another test of the 50-day moving average before committing capital.
Kirby remains in a downtrend, with the 50-day moving average defining resistance on rallies. Until that changes, the best trade is to sell on rallies. What about buying on dips? Well, you could do that too, but the upside is diminished with each new lower high. I'd rather wait for the stock to start trading above the 50-day moving average before buying. And if current support at $44 breaks down, I'd sell in a hurry.
Express Scripts is less than 10% below its all-time high. This two-week pullback could be just the pause that refreshes the bulls before they take the stock to new highs. But if you're long now, I'd suggest keeping a very tight stop -- after all, resistance remains resistance ... until it doesn't! So any pullback vindicates the bears, and you don't want to go against the grain. But if the bulls manage to push ESRX higher, I'd start buying, as long as volume remains high.
Gran Tierra Energy has tested $4 twice this month. Both times, the intraday lows were rejected by the bulls. Now the stock has blown through resistance, albeit on unimpressive volume.
So what do we do now that the stock is at $5? Well, we can't really use $4 as a reference for a protective stop -- that's 20% below the current price. Instead, I'd look at the more recent pullback to $4.50 as the low. Put a stop just below that level, and you've contained your loss to 10%. Not great ... but acceptable.
Have a great Labor Day weekend. I'll see you next week ... and be careful out there.
Dan Fitzpatrick
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