OK, let's look at some charts.
The volatility in this market has been very difficult to trade unless you have had the luxury (or the curse) of sitting in front of your monitors all day and watching all the sharp wiggles, peaks and valleys. If you don't have the time or inclination to do that, the better approach is to take smaller positions on stocks you like, and then to just tolerate the volatility. Accept it as a condition of the market that will ultimately lead to more clarity.
But you don't have to cease trading. Instead, pick your ideal entry points on stocks you'd like to own and hope that the volatility gives you your entry price. You can either set "good 'til cancelled" (or GTC) buy orders, or alerts. Virtually every broker offers its clients the ability to set a specific price that will trigger an alert, either via email or text. Yahoo! Finance does it for free -- no brokerage account required to look at that site.
The bottom line is this: You can use the volatility in the way that best suits your abilities and trading style. Fast, nimble traders love this volatility because of the wide intraday swings. They'll trade those quick turns and big moves. But those who don't need that stress can also benefit from the volatility by deciding exactly where they'd like to buy -- and then waiting for the volatility to give them their entry.
Today, let's look at the following four charts.
I have owned United Rentals for the past couple of years, and I'm not about to sell it now -- not unless it hits the stop referenced in the daily chart. This chart shows a very reliable trend: Any pullback to the 50-day moving average offers a new entry.
Now, the stock fell on heavy volume just a couple of weeks ago, and it fell hard -- two big days of selling on high volume. But since then, the stock has stabilized at the 50-day moving average. So it's trading a bit differently from how it did during prior moves, which saw the stock quickly bounce rather than loiter at the 50-day moving average. The company is due to announce earnings after the bell. If the stock pops, I'm in good shape. But if it drops, it'll be time to take some profits and look elsewhere.
This weekly chart of SanDisk shows a reliable uptrend along the middle Bollinger Band -- the 20-week moving average. There was one exception to this trend, and that was during the second quarter of 2013. But that consolidation turned out to be a very good buying opportunity. SanDisk is set to reports earnings after the bell today. If you want to trade this stock during today's session, I'd suggest buying about one-half of your desired position prior to the close, and then hope that the stock drops. It probably seems a bit odd that you buy, and then hope that you lose money. But you'll be balancing risk. You'll own some stock, which will make you money if the stock pops -- and you'll also have some cash ready to take the stock on a pullback.
As long as SanDisk remains above the 40-week moving average, I think the trend will continue to work.
The other day I was on Power Lunch on CNBC, but our interview was cut short -- probably the shortest interview I've had on that network. One of the stocks I intended to discuss was Hess. Here's why.
The stock printed an inverse head-and-shoulder pattern from late 2011 to late 2013 -- a pattern that took more than a year to complete. After that completion, the stock ramped about 60% before starting a new consolidation phase. But just the past few days have seen the stock hitting new highs. Shares are moving out of the channel and starting a new leg higher. A daily chart (not shown) shows that the stock has consolidated for the past week or so, which bodes well for this move.
Still, I never just "buy, buy, buy" a stock that's breaking out of consolidation unless the consolidation had been a volatility compression -- very tight trading that ultimately leads to a breakout. This is not that! The channel in Hess has been fairly wide. So I'd suggest treading lightly here. I do think this stock should be bought now, but I also believe just a partial position is warranted. If the stock falls back to test $80, I recommend buying the remaining shares you'd like to own.
A Real Money Pro subscriber asked me to check out Sky-mobi. This weekly chart shows a breakout from a six-month consolidation that ultimately led to a doubling of the stock price, from $5 up to $10. But you can see that volume peaked as the stock moved above $10. When a stock moves like a rocket ship launched from Cape Canaveral (or any other launching pad -- Cape Canaveral is just the only one I can think of), ramping up at such a steep rate that you just know it's unsustainable, there are two ways to trade the move.
First, if you catch it early, hop on. Ride the move until the second trade appears. That second trade appears exactly as you see it here: You want to see a big red bar with a wide range, and it needs to be accompanied by lower volume than the prior volume bar, which accompanies what turns out to be the top of the move. If you're long, that's when you close the position. If you want to sell short, there's your entry.
Would I want to buy Sky-mobi now? No, that's not my trade. The stock is still more than 10% above the first logical level of $6, which is where the stock peaked last October. If that support level doesn't hold, the stock could fall to $5 without much selling pressure. So I just think the opportunities are gone in this name. It's a bit too late to short, and way too early to go long.
If you have a stock you'd like me to check out, please email me here.
Be careful out there.
At the time of publication, Fitzpatrick had no positions in the stocks mentioned.