Steer Clear of SanDisk

Chart analysis of the memory-chip maker, plus Titanium Metals, Honeywell and Beazer Homes.
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This column was originally published on RealMoney on Oct. 31 at 11:58 a.m. EST. It's being republished as a bonus for TheStreet.com readers.

Last week, I received an email from a reader about

Titanium Metals

(TIE)

. She said that she was long, but she was a little nervous about the fast run-up the stock has had. Does this sound familiar to you?

I think a lot of traders, including me, struggle with the task of holding a stock that is moving higher at a faster rate than you had imagined it would. Of course you expected it to move higher, right? Otherwise you wouldn't own the stock.

But what happens when the stock moves higher and you start getting an itchy trigger finger? I like to step back and look at the price pattern from a longer-term perspective. I want to understand whether it's the price action or my own emotions that are giving me that sense of urgency. Sometimes I quickly find that the stock is moving just fine and that the prudent thing to do is to simply hang on to the stock. But it's a difficult situation (though one that many struggling traders would love to have on a regular basis).

If you struggle in your ability to hold profitable trades, try to understand your underlying reason for wanting to sell. Are you concerned about giving up some profits? If so, that's what trailing stops are for.

There are a number of different stop methodologies you can use. Perhaps you'll want to get very sophisticated and use chandelier stops or Kaufman volatility stops; maybe you'll want to keep it simple and use a simple moving-average stop or a rigid trailing stop based on dollar or percentage pullbacks. Whatever the chosen method, you'll find that you can rest easier in your profitable trades because the decision to close the trade isn't really yours; it's up to the market.

The trading process holds an almost infinite number of ways to make you feel bad. But two of the worst feelings can be automatically avoided by the use of trailing stops. First, you'll never have to regret watching a profitable trade turn into a loser simply because you were relying on hope as a primary methodology. Use a trailing stop to protect your trading capital. Second, you are also likely to avoid that sick feeling of selling a stock for a small profit because of an emotional need to ring the register, then watching that stock move to nosebleed heights while you helplessly watch from the bench.

Let's look at Titanium Metals and a few other readers' requests.

I wrote about Titanium Metals just a couple of weeks ago when the stock was around $28. I noted that the uptrend was in need of some heavier trading volume to be sustainable. We finally got that last week when the stock broke above $30. But I could say the same thing now -- if this uptrend is to continue, I think we'll need a push above resistance on heavier-than-average volume.

Earlier this month,

SanDisk

(SNDK)

just got crushed. The subsequent trading action illustrates why buying after such a deep, high-volume decline is problematic.

Each little rally attracts a lot of selling interest from those who either failed to sell prior to the initial breakdown or who bought during the actual breakdown and now wish to undo that error. No matter how you cut it, there is a lot of latent selling interest just waiting for anyone who is ready to buy. I'd just stay away from this one for now. If the stock falls below support, I'd consider shorting it.

Beazer Homes

(BZH) - Get Report

has been putting in a bottom for the last few months and is close to starting its next leg higher. I've highlighted the last three tags of the upper Bollinger Band along with the corresponding peaks in RSI. For RSI to confirm what we're seeing in the price action, we need to see higher highs with each peak in price. That's what we see now.

I've highlighted two alternative buying points. A pullback to the middle Bollinger band would be my preference, but if the stock instead breaks above $45, the action will likely attract a lot of buying interest. If you like the homebuilders, either entry will do.

Hexcel

(HXL) - Get Report

had been trading within a fairly tight range until the breakout above $15 in early October. Now, the upside volatility is expanding and the stock is higher than it's been since June, when it was trending lower. This breakout could be the start of a new uptrend. If you're long, try putting a relatively loose stop below the 50-day moving average to give the stock room to churn. If the stock pushes above Thursday's high, I'd say we could see a test of $20 within the next few months.

Honeywell

(HON) - Get Report

has stalled at $43 for the past month, despite a very strong market environment, but I wouldn't give up on this stock unless if falls back below the 50-day moving average. RSI has been printing lower highs, which is a bit troubling. Nevertheless, if the stock breaks out above $43, I'd probably buy it.

Be careful out there.

At the time of publication, Fitzpatrick held none of the stocks mentioned, though positions may change at any time.

Fitzpatrick is a freelance writer and trading consultant who trades for his own account in Encinitas, Calif., and contributes to

TheStreet.com Short Advisor

. He is a former co-manager of a hedge fund and teaches seminars on technical analysis, options trading and asset-protection strategies for traders and business owners. Fitzpatrick graduated from the McGeorge School of Law and was a fellow at the Pacific Legal Foundation, a nonprofit public interest firm specializing in constitutional law. He also practiced law in the private sector before pursuing trading as a full-time career. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Fitzpatrick cannot provide investment advice or recommendations, he appreciates your feedback;

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