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.
This weekly chart of
First Solar shows a stock in a very precarious position. The company has lost about 50% of its market cap since the May peak, and the stock is now back to test the January low. Maybe with so much red running down the gutters on Wall Street, people just aren't feeling that green anymore. If the stock falls much below $150, I think you just have to sell.
Arch Coal is back down to test multiyear lows. Now that all the froth has been blown off the top of this bubble, I'd look to buy on any sign of strength. But I'd also then put a stop just below $25.
This weekly chart of
JPMorgan shows a stock that's swinging wildly, making higher highs and lower lows. But notice how the last low failed to tag the downtrending support line? That makes me more comfortable buying the stock on the next dip. Would I buy now? Nope -- it's too close to established resistance. Instead, wait for a pullback to around $40. Then buy.
Huntington Bancshares has been as volatile as the rest of the regional banks, but it's been holding up better than most. If you're still long after last week's advance, though, I suggest taking profits. You can always buy it back on a pullback to around $8.
Notice how the support and resistance lines are diverging in this weekly chart of the
Financial Select Sector SPDR ETF (XLF). Both are trending lower, but the lows are getting increasingly extreme. This increasing downside pressure pushes the support line further and further away from resistance. However, the last few weeks of price action are indicative of a bottom, where the bears just cannot maintain the downtrend. This could mark a higher low, but I'd still keep any long position protected with a stop just below $18.
Be careful out there.
Ever wish you had a chance to meet Jim Cramer, James "Rev Shark" DePorre and Vince Farrell? What would you ask them about their investing strategies or aligning your portfolio for 2009? You'll get your chance at a TSC conference on Oct. 25, in New York City. Please click here to email us for more information.
Dan Fitzpatrick
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