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.
U.S. Steel dropped more than 50% below the 50-day moving average before closing up near the top of the intraday range. If you're looking for something to buy, here's your ticker!
McDermott looks to be digging itself out of a deep hole after trading down more than 20% on an intraday basis. Volume was more than twice the average, which makes me feel like buying.
Bucyrus fell out the bottom of this downtrending channel, only to move back up to hit prior support. Given the vast distance between the 50-day moving average and the current price, I'd look for more upside from here.
CSX actually closed up on the day -- if you count two pennies as "up." But after falling more than 25% below the 50-day moving average, CSX is ripe for a correction. I think it's happening now. I'd be a buyer for a quick trade ... and sell around $52.
KB Homes fell out the bottom of a trading channel, which puts it in a new world of hurt. I'd be careful here, because any move back up to $19 is likely to bring out some sellers.
Be careful out there.
Dan Fitzpatrick
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