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TECHNICAL ANALYSIS


PENDY'S PICKS: June 26, 2012

06/26/12 12:20:05 PM
by Donald W. Pendergast, Jr.

The European Union summit did little to stop the .OEX from selling off sharply again, and the gold stock exchange traded fund has signaled a new swing sell signal.

Security:   N/A
Position:   N/A

The Standard & Poor's 100 (.OEX) sold off again on Monday, June 25, dropping to 602.09, fulfilling expectations of lower prices as several key cycles in this index continue to fall. Strangely, no new RMO (Rahul Mohindar) swing sell signal has yet been issued for the .OEX; a drop below 600.00 this week will likely trigger a new sell in the index, however.

Figure 1 is a look at the strongest 13-week relative strength performers in the .OEX. Telecoms remain strong, with AT&T (T) and Verizon (VZ) gaining relative strength, even as Sprint Nextel (S) has begun to falter. Disney (DIS), National Semiconductor (NSC), and Amgen (AMGN) have also begun to lose downward momentum. Wal-Mart Stores (WMT) and Altria Group (MO) are also hanging tough, continuing to outperform the .OEX over the past calendar quarter.

FIGURE 1: S&P 100 STRONGEST COMPONENTS. The 10 strongest S&P 100 components that have been outperforming the .OEX over the past calendar quarter as of Monday, June 25, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 2 is a look at the weakest 13-week relative strength performers in the .OEX; JP Morgan Chase (JPM) continues to slide, while Goldman Sachs (GS), Citigroup (C), Bank of America (BAC), and Morgan Stanley (MS) are falling at a less severe pace than the .OEX. This newest relative strength ranking depicts a market that, while still falling, may be losing some downward momentum compared to the S&P 100 as a whole.

FIGURE 2: S&P 100 WEAKEST COMPONENTS. The 10 weakest S&P 100 components that have been underperforming the .OEX over the past calendar quarter as of Monday, June 25, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 3 are the S&P 100 components giving RMO swing sell signals; there were no RMO swing buy signals at all as of Monday's close. A full 11% of the .OEX components issued new RMO swing sell signals on Monday, which is not a surprise, given the wide range bearish reversal bar in this biggest of the big large-cap index. Four oil sector giants have just fired new sell signals (all of which will trigger a short entry if they drop below their respective Monday lows) -- Chevron (CVX), Halliburton (HAL), Baker Hughes (BHI), and Schlumberger (SLB).

With crude oil still below $80 and gasoline continuing to fall (now down from $3.94 to $3.18 in just 11 weeks, here in Jacksonville, FL, a 20% decline), it remains to be seen if consumers will start buying a range of additional goods and service with their newfound savings in gas money.

FIGURE 3: RMO SWING SELL SIGNALS. The S&P 100 components issued RMO swing sell signals at the close of trading on Monday, June 25, 2012; 11% of all .OEX components fired sell signals during this session, with no .OEX stocks at all firing new buy signals.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 4 are the six exchange traded funds (ETFs) from major industry groups or sectors that are flashing new RMO swing sell signals. Note that there were no new RMO swing buy signals on Monday, and until at least we see more of a balance between buy and sell signals, the broad US market is still a treacherous place for bulls to deploy significant sums of new capital.

The new sell signal in GDX (Market Vectors Gold Miners) comes one day after a similar sell signal in the physical gold market (Friday's end-of-day RMO sell signal in GLD) and adds an even more bearish tone to the disturbing price action seen in the precious metals markets since the spring of 2011.

In addition, of note are the two iShares energy-related ETFs, IEZ and IEO, both of which are on new RMO sell signals, with IEZ triggering a sell on a decline to $42.42 and IEO triggering a short sale at $52.67. The downward momentum in each of these markets is substantial, but be aware that any short-covering rallies could be swift and violent after such lengthy declines.

FIGURE 4: RMO SWING SELL SIGNALS. Here are six ETFs that have fired new RMO swing sell signals as of the close of trading on Monday, June 25, 2012. Gold stocks (GDX) are now in agreement with the physical gold market that the bears are now back in control in the precious metals market -- at least for the short term.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
The price cycles in the .OEX are mixed; the 10- and 18-day cycles are still in heavy down mode and the 34-day cycle is near an anticipated top. Higher time frame cycles are actually in ascending mode, as difficult as that may be to believe right now. This month's major low of 579.26 (made on June 4) remains a very strong support level, so that is one of the main price zones to keep a close watch on.

Summing up, the broad US markets are in an early summer funk, with oil sector stocks dragging heavily on the .OEX and .SPX. Gold, silver, and the precious metals stocks are also looking vulnerable here as well. If you must trade the short side (not recommended for inexperienced traders), then make sure you are using strict risk control and a proven mechanical trading strategy to initiate, manage, and terminate each trade with. Better yet, consider standing aside until the cyclical and short-term trend situation in the .OEX clears up.




Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address: lineartradingsys@gmail.com

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