February 19, 2008
The following stocks are featured in my column on RealMoney.com on Tuesday, February 19th:TEX, CHK, HON, CBI, MRVL and PAL
TEX has been bumping along the 50-day moving average on its decline from $90 to $50. But the recent higher low could be the beginning of a base that reverses the decline. If you’re bullish on TEX, try waiting for a pullback to $55 before buying; and protect it with a tight stop.
This weekly chart of CHK shows the stock now climbing in a prolonged uptrending channel. The safest entry is on a pullback to support. But if you can’t wait that long, at least let the stock fall back to $40 before jumping in.
HON has been deleted from the Dow Jones Industrial Average ($DJIA), but loss of membership in that exclusive club doesn’t make the company less attractive on pullbacks. I’d be patient and wait for the selling to abate. Then I’d try to pick up some stock nearer support at $52.50 or $53.
CBI broke below an established trendline in early January. Since that time, the stock has fallen more than 20%. While we might be seeing the first signs of support at $40, the trendline break is an ominous sign. I’d be leery about buying this stock now and would want to see more evidence of buying before committing money to this stock. And if the stock falls below $40, I’d just stay away altogether.
MRVL is decisively below the 50-day moving average and is closing in testing a “triple bottom”. If the bulls once again show up and buy the stock down at $10, we could see a reversal in the downtrend as the 50-day moving average continues to fall towards that level. But keep something else in mind. The more a particular level or support or resistance is tested, the more likely it is to break. Also, a trend remains valid until decisively broken. So far, we’ve seen few signs of a break in the downtrend, unless you count “hope” as a valid trading signal.
PAL is in a dramatic uptrend, moving from around $3 up to almost $7 in less than a month. Is it time to sell? I wouldn’t be so quick to close out this trade simply because you feel guilty about making so much money. Instead, embrace the guilt! But the 10-day moving average has been defining the low end of the range, so I’d suggest using it as a reference for a trailing protective stop. As long as PAL remains above this key short-term moving average, I’d stay long.
Be careful out there.