Four days a week, Dan Fitzpatrick provides his take on several stocks for RealMoney subscribers. Here's his take on STEC and four other names. For a free trial to RealMoney, click here.


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 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.


STEC (STEC)
Daily
StockCharts.com

The last few days of trading in STEC have confirmed the breakout above $8.50. Notice how last Friday's breakout occurred on nearly twice average volume, while Monday and Tuesday's tight consolidation occurred on just average volume. After that brief pause, STEC is again off to the races.

While you might want to keep a tight stop just below $9 to protect new positions, I would not consider this trend in trouble unless the stock falls back below prior resistance of $8.50.


Smith & Wesson (SWHC)
Daily
StockCharts.com

We first looked at Smith & Wesson back in mid-January when this firearm company was trading around $2.50. Since that time, it has been good to be long SWHC. The bulls took a break after pushing the stock as high as $7 last month; since then, we've seen a steady stream of higher highs. But yesterday's close above $7 occurred on heavy volume, and my bet is that SWHC resumes the uptrend.


Sturm Ruger (RGR)
Daily
StockCharts.com

Sturm Ruger announced solid earnings yesterday, but the stock is still within an established trading channel. Until the stock closes above $13, I'd stand aside, but I'd also buy any pullback to around $11.


Darling International (DAR)
Daily
StockCharts.com

Darling International has doubled since March, but over the past couple of weeks the trading range has been gradually narrowing in a series of lower highs and higher lows. That puts DAR in a critical area, where the next move will likely be a big one. But here's the problem -- is it up or down? Until it happens, only the liars and fools know for sure. So I'd wait for a breakout before buying, and I'd keep a tight stop just below support.


ON Semiconductor (ONNN)
Daily
StockCharts.com

While ON Semiconductor is close to breaking out, a 12% rally in just one day puts the stock in short-term overbought territory. So it would be tough to justify buying the stock on a breakout above $5.50. The only way I'd make that trade would be on a close above that level, and I'd keep a stop just below current resistance. But I'd rather wait for a pullback to current support.

Be careful out there.


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At the time of publication, Fitzpatrick was long SWHC, though positions may change at any time.

Dan Fitzpatrick is the publisher of StockMarketMentor.com, 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; click here to send him an email.