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.
A 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.
I zoomed way out to a monthly bar chart to see where the real support level lies for the
Dow Jones Industrials. Surprise -- it's at 10,000. The market is ripe for an oversold bounce, but if it doesn't occur before 10,000 is tested, look for buyers to show up at that even number. And if you're buying at 10,000, keep a tight stop -- catching falling knives can get you bloodied up if you're not careful.
This weekly chart shows
JPMorgan continually peaking at $48. But each low has been lower than the last, until this month. Notice how the recent low at $34 is higher than the July low. That's bullish. But until JPM moves above $48, I consider it rangebound. As such, I'd only be a buyer near prior support, with a tight stop.
Toll Brothers is in a trading range, but is still above support and right in the middle of a channel. If we get more weakness and the stock falls to around $23, then consider buying it with a stop just below the 50-day moving average.
ArcherDanielsMidland is in a prevailing downtrend, and that makes it a "Don't Buy, Don't Buy" to me. Support is down at $20, and if this downtrend is to end, prior support needs to hold. As such, if the stock falls below $20, I don't want you to be long. Instead, just protect your dough and live to buy at a lower level.
Apple broke down Monday as prior support from mid-September vaporized right at the open. It seems like $100 would be a pretty good level to buy AAPL, right? Well, I'd avoid trying to be a hero and instead let others step in and buy. Wait for the sellers to finish, which can be identified by a higher close. That's when you take a bite out of AAPL.
Be careful out there.
Dan Fitzpatrick
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