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.
Special note: In this volatile environment, you've got to time your entries with pinpoint accuracy. Don't just buy because a stock hits prior support. Instead, be a sniper and wait for evidence that the prior support level is actually holding -- don't be the first guy in. Plenty of brave soldiers on the front lines receive the Medal of Honor posthumously. Focus on capital preservation and profits -- let the other guys go after the medals.
This weekly chart shows
Coca-Cola in a multi-month downtrend, losing 20% of its value this year. The last pullback found buyers at $50, and that's where I'd be looking to buy now. But even then, I'd want to see others in there before me. Wait for the bounce, don't predict it.
This weekly chart shows
Pall Corp. right back at reliable support at $35. Each time the stock has dipped to this level since last August, buying has been rewarded with a move of about 20%. So is this time any different? Maybe so ... but maybe not. Wait for evidence of buying before pulling the trigger. Then use a tight stop!
I covered
True Religion last week in my "3 Stocks I Saw on TV" video, but I've had a few requests for a follow up. This daily chart shows the stock pulling back to my suggested buy point at the 50-day moving average. I'd start focusing on the relationship of the 50-day moving average and the support line I've drawn above. Frankly, I'd place more reliance on that uptrending support. If it fails, I'd take the jeans off before I lost my shirt.
Corning has been in a gut-wrenching downtrend for quite a while, with the 50-day moving average playing a key role in the price action. Up until mid-June, the 50-day moving average had defined support on pullbacks. But after the breakdown in mid-June, the 50-day moving average proved to be resistance on the July-August rally.
Now, GLW is rebounding for an extreme move below that same key moving average ... and I'd expect any rally above $18 to meet resistance once again at the 50-day moving average. So what would I rather do? I'd rather wait for a pullback to $15 and trade the next bounce.
Intercontinental Exchange has been very volatile of the past week, falling to nearly $60 on Thursday, and spiking to nearly $120 on Friday. Now that's volatility! But I'd disregard the highs and the lows and consider the support-resistance boundaries to be around $68 to $90. Until the stock falls back to test that support line, I'd just stand aside and let the other guy trade this fast mover..
Be careful out there.
Dan Fitzpatrick
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