FSYS Trade

Every now and then my mind slips and it feels like 1999 to me and I just have to DAYTRADE, or at least feel like I am.
Whenever you read a book on Technical Analysis they tell you that you should use multiple timeframe analysis. That's all well good and true, but then no one really bothers to explain how you go about using that multiple time frame analysis, so your left with not too much more than you had when you picked up the book.
Today I bought Fuel System Solutions, which will allow me an excellent opportunity to show you how to properly use multiple time frames in your trading.
Lets first look at FSYS the company on a very basic level. This is company that manufactures components used convert cars to run on Natural Gas. Nothing is much hotter right now than energy, and alternative energy is all the rage, especially with the expectations of an Obama Administration. Not only is Fuel Systems in a good industry for the moment it's recent past shows that management has done a much better than average job of running the company. EPS growth has been in the several hundred percentage range for the last three quarters, and sales growth has also been growing in the mid to high double digits. The company maintains low debt, high insider ownership and a still relatively modest PE of 39 (modest given the growth rates it has shown, see my prior article on Price to Earnings Ratio's)
Now for the technical end of things. As you can see in this chart Fuel Solutions has maintained a strong uptrend for the last several months. This uptrend, a price movement consisting generally of higher highs. As a general rule I favor buying stocks in uptrends since it has been my experience that simply standing in front of a train and expecting it to stop because you are standing there is foolish, its much better to just get on and ride the thing. From 7/15 until 8/5 the stock formed a nice little basing pattern, breaking higher on modestly higher volume on the 6th just ahead of earnings. Not wanting to jump into a brand new position in a stock two days head of its earnings report I have had to be content to just watch. On the 8th FSYS reported good earnings and raised Wall Street's expectations about the coming quarters, which caused a sharp move higher.
After the breakout and then the sharp rally on the 8th the stock, in my estimation, needed to cool off a bit. The best ways for this to happen is either by a period of sideways, basing price movement like you see in FSYS from Mid July until Early August, or by retracing some of the gain, forming what we call a bullish flag. That is what FSYS has done, forming the high level flag between the 14th and today. This morning I came in with FSYS on my watch list, and right away it provided an entry opportunity, which you can see on the bottom, one minute, chart. This entry was from $56 per share and allowed a small initial stop loss to be placed under $55.50. The next setup occurred as the stock broke higher out of the first and then pulled back. My entry here occurred at $57.10 with my stop on the first potion raised to $56.50 and the stop on the new entry also placed there. I now have myself in a situation where I have a lot to gain, and nothing to lose.
Using multiple timeframes in this manner is truly, in my opinion, one of the best ways to lower risk. If you can find an intraday setup for a multiday or swing type position you can risk the smaller amount that is typically found on the intraday, daytrading setup, while having all of the upside potential of the larger timeframe to boost your profits.
A few times a week I stop have time to stop by Toni Hansen's tradingfrommainstreet.com chatroom, which is free on othernet, and allow traders to see what I am doing at the instant I do it. Today was one such occassion and traders in the room got to watch live as I gave the entries on FSYS.
Disclosure: I am long FSYS from an average price of $56.60, my stop is now under the intraday support at $57.50.