Fitz Bits: Mosaic Shows the Wisdom of Scaling In

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.

3 Stocks I Saw on TV



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 timeframes for different things, otherwise your actions will largely be a function of your emotions.



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Last Thursday, Mosaic pulled back to test the early-April breakout level of $120. On Friday, the bulls took the stock back above $130. Volume was just average. But with the stock generally bouncing off the 50-day moving average on pullbacks, I'd give this stock some room on any pullback. A stop around $110 would be prudent ... but here's the problem. There has been so much volume all the way up the line, from $80 on up to around $110, that any pullback could catch support at any of those levels. This makes placing a stop problematic, because you are always at risk of selling just when buyers start pushing the stock higher. Hence, you need to buy at different levels -- that way, you rarely get nervous when the stock pulls back. When you get nervous, you tend to do things you shouldn't do.



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The iShares FTSE/Xinhua China Index ETF had been wallowing for months, just dropping lower and lower and dragging the 50-day moving average down with it. But that began to change in March. With the breakout and successful test of the 50-day moving average, FXI is now back above the February high. If you're long, try giving this a bit of room to compensate for the volatility. But the trend is up, so I'd maintain a bullish bias.



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Agrium broke out a couple of weeks ago when it blasted above the late-February high. The stock has been consolidating in a fairly tight range, with short-term support at around $85. Volume was unimpressive on Friday, so I'd really like to see any further advance be accompanied by higher volume. If you're a short term trader, try keeping a fairly tight stop on this stock -- after all, a pullback from $90 down to $75 isn't going to make you any money. But if you've got a longer time horizon, I think any kind of pullback should be bought. This stock should see $100 soon enough.



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Terra Nitrogen is another volatile agrichemical stock. As with AGU, TNH moved higher on light volume on Friday. I'd watch for resistance up at $160. I'd also be a buyer on any move above that level.



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Zoltek trades less than a million shares each day, and this latest rally is moving on extremely light volume. That makes it suspect in my book. Rather than buy any breakout, I'd rather wait for a pullback to test the 50-day moving average. Then I'd buy, and I'd put a stop just below $22.50.

Be careful out there.