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've drawn circles around the last two bottoms in
Foster Wheeler. A reader asks whether this is a "double bottom." Well, right now all I see is a lower low and an oversold rally. Both lows extend well below the lower Bollinger Band, which indicates persistent downside volatility. While we might see more upside in FWLT, the downtrend persists, and I'd expect more selling if the bulls can push the stock above $40.
This weekly chart shows
IBM in an uptrend, continuing to print higher highs and higher lows. But the last high of around $130 was well below the resistance line that began in late 2006. So this stock looks like it's rolling over to me, and I'd be wary about buying this current oversold bounce. Sure, you'll probably get some upside, but I'd suggest selling into any strength.
Notice how low
Dry Ships is relative to the 200-day moving average. This is an extreme oversold dynamic in which the bulls are likely to push the stock higher from here. But don't get too attached here. The stock is in a downtrend, so any move back to the middle Bollinger Band (the 20-day moving average) is one that I'd sell.
U.S. Steel has been under heavy selling for the past few months and it's finally reached an extreme distance below the 50-day moving average. Yesterday's bounce (is there any stock that did
not bounce yesterday?) could keep the bears at bay for a while. But I'd still be selling if the stock hits $90. Respect the downtrend.
Pepsi continues within a volatile uptrend that began in July. It's now bounced again off the 50-day moving average. I'd be a buyer now, with a stop just below support. While things may go better with
Coke (KO Quote - Cramer on KO - Stock Picks), PEP looks pretty good to me.
Be careful out there.
Dan Fitzpatrick
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