Fitz Bits: Take a Spin, but Be Careful

OK, let's look at some auto stocks. Tata Motors (TTM) Ford (F) General Motors (GM) Lear (LEA) Tesla Motors (TSLA) 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 I Saw on TV 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. This weekly chart of Tata Motors shows a tight consolidation right around the 2011 top that ultimately led to a 50% price haircut. So the 2012 run has been a powerful retracement that warrants attention. Frankly, I'd buy some stock right now as a starter position. Subsequently, a breakout above resistance should prompt a more aggressive commitment. Ford has been consolidating right around $12.50 for quite a while. So far, the supply at $13 has kept the stock in check. Simply put, buyers never have to pay higher than $13 in order to get the stock. But Ford only pays a dividend of 1.6%, so that's not sufficient reason to hold these shares. Instead, just wait for the stock to clear $13 -- then buy. General Motors has been trading in a tight range above the 200-day moving average, so this is a pretty simple chart to read. Now that the stock is above that long-term line, many traders will want to buy it on pullbacks. You can see the pullback on this daily chart -- it's right at support. So if you're into GM, buy the stock now with a protective stop, as indicated in the chart above. This leading auto parts manufacturer has been unable to break through $47 for the past two months. Notice how Lear bottomed in December on twice the average volume and has been trending higher ever since? Well, the stock looks close to breaking out as it prints a series of higher lows. While you could wait until the stock clears $47, another way to trade it would be to buy right now as it leans against support and then protect that position with a stop. If you get stopped out, the supply would still be at $47, and there would be no reason to hold the stock. Tesla Motors is a speculative stock that really hurt the speculators Wednesday when it traded lower on massive volume. But there was little follow-through Thursday. While the stock did trade lower, the volume was only a fraction of the prior day's trading activity. So if you're a fan of Tesla, buy the stock now and keep a snug stop just below the 50-day moving average. Be careful out there. ________ Editor's Links More technical analysis: IBM Sending Bearish Signals Flying Too Close to the Sun Pondering Pier 1

Fitz Bits: Take a Spin, but Be Careful

These auto stocks could all be buyable -- just be sure to follow these parameters.

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