This post appeared yesterday on RealMoney. Click here for a free trial, and enjoy incisive commentary all day, every day.
Today we'll look at some reader requests:
- General Motors (GM) - Get Report
- Ford (F) - Get Report
- U.S. Steel (X) - Get Report
- BP (BP) - Get Report
- Arch Coal (ACI) - Get Report
Each day, I'm featuring several reader requests for the current
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.
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.
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.
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.
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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 time frame 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.
is close to breaking out of a tight flag pattern. This little series of lower highs and higher lows is occurring on below-average volume. That's indicative of profit-taking and not real aggressive selling! So I'd want to buy GM on any move above the 50-day moving average ... but I'd also want to keep a stop to protect my money just in case GM runs off the road.
is out ahead of GM by just a bit. Notice how the stock has broken above a reliable downtrending resistance line? Well, yesterday's move was on twice average volume with only one little hiccup. You'd normally like to see a stock on a new breakout close near the top of the intraday range. Ford closed right in the middle, revealing some weakness into the close. So I'd be careful of buying now. But if you're long, don't close out the trade just because yesterday's close was a bit weak. Instead, keep a tight stop to protect profits.
has been hammered by the bears for quite a while. But March is treating this industry leader quite well. If you're into picking bottoms, then X just might be your trade. A stop just below current support would protect you in case you are wrong to buy. But if you are right, you'll have a pretty nice trade all the way up to the 50-day moving average, which is where you'd be well advised to sell.
has quickly run back up to test last month's breakdown of prior support at $40. But the stock has run about 20% in just a couple of weeks, so this is a tough one to buy right now. And even if the bulls do want the stock bad enough to buy it above the 50-day moving average, the next level of resistance is just 10% higher. Here's the bottom line: BP could move higher ... but buying now is a low-probability trade. Patience will be rewarded.
just might be ready to start an uptrend. While coal isn't exactly on the administration's "most favored industry" list, neither is the industry going to disappear anytime soon. I'd look for some upside in ACI if the bulls show enough demand for the stock to push it above the 50-day moving average. After all, the last three tests of that key moving average failed. Maybe the fourth time will be the charm!
Be careful out there.
Know What You Own:
Arch Coal's competitors include
At the time of publication, Fitzpatrick had no positions in stocks mentioned, though positions may change at any time.
Dan Fitzpatrick is the publisher of
, an advisory newsletter and educational forum dedicated to teaching effective risk management and trading methodologies to aspiring traders and investors. He is a former hedge fund manager and a member of the Market Technicians Association, and he now trades from his home in San Diego, Calif. While Fitzpatrick holds various securities licenses, he does not give recommendations to buy or sell stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He appreciates your feedback;
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