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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.
General Electric is trying to put in a bottom between $26 and $30. But the trend is still down, and this is such an over-owned stock that the base-building process could take a lot longer than you'd think. So if you're drawn to GE, then consider trading it like a channeling stock -- buy near $26, and flip it 10-15% higher ... then do it again.
General Motors was a strong gainer last week after popping out of a one-month volatility squeeze. But after running up above $14 on Friday, the stock closed in the lower half of the daily range.
After such a big intraday move, a lower close is a sign of buying exhaustion. As such, I'd wait for a pullback to test the breakout level at around $12. Then I'd feel more comfortable buying because I could put a stop back in congestion -- locking in a small loss as a worst-case scenario.
Energy iShares has been increasingly volatile over the past year in a series of higher highs and lows. I've highlighted the early January low at $40. While this energy ETF traded almost down to $30 in January, that print was immediately corrected and closed near $40. Now IYE is back at that same level, once again spiking down below support only to correct before the end of the week. If you're an energy bull, now is the time to buy IYE, but keep a stop just below the tail.
CF Industries has been in a persistent uptrend while bouncing along the 40-week moving average on increasing volume. But over the past few months, the stock has rolled over and is testing that key moving average. Volume was at a record high last week, which could mark a short-term bottom. But the uptrend is in trouble, and I'd look for any rally to fail before testing $160.
This weekly chart of
Monsanto illustrates how successive extremes can give warning signs of a trend reversal. Notice how the pullback in mid-2007 tagged the 200-day moving average, while the pullback last March extended below the 200-day moving average.
So where is MON now? Trading decisively below the 200-day moving average, effectively transitioning from support to resistance at the 200-day moving average. The high-probability trade is to be a seller on a retest of resistance at $120.
Be careful out there.
Dan Fitzpatrick
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